Annual Report and Group Financial Statements 2019 /20 Principal advisors, secretary and registered office

External auditors Principal bankers Secretary & registered office

PricewaterhouseCoopers LLP National Westminster Bank PLC Iain Mackrory-Jamieson

Chartered accountants and Corporate banking Director of Governance - statutory auditors Group Company Secretary

1 Embankment Place Second Floor, County Gate Southern Housing Group London WC2N 6RH 2 Staceys Street Fleet House Maidstone 59-61 Clerkenwell Road Kent ME14 1ST London EC1M 5LA

The consolidated financial statements of:

• Southern Housing Group Limited • Southern Home Ownership Limited • Southern Space Limited • Southern Development Services Limited • Spruce Homes Limited • Southern Housing Construction Limited

Southern Housing Group is a not-for-profit housing association – every penny we make and more is invested in providing good quality homes and services. CONTENTS

Introduction 4

01. Strategic review 8

02. Financial review 56

03. Audit and risk committee report 90

04. Report of the Board 94

05. Independent auditors' report 100

06. Group financial statements 110 CHAIR OF THE BOARD AND CHIEF EXECUTIVE’S INTRODUCTION

As we publish this report, the world is still dealing with Rising to meet the challenges the COVID-19 pandemic. We cannot underestimate the enormous changes this has forced on every one of us in A serious fire in Barking in June 2019, in which fortunately such a short period of time. It does seem like another world no one lost their life, demonstrated just how professionally away looking back on our financial year 2019/20. we deal with major incidents. A team of dedicated colleagues came together, working through the night Governance to support our residents. Although none of our homes were damaged, the effect on residents made for an We introduced some far-reaching changes to our anxious time for everyone. The ramifications of that governance structure. These changes are successfully fire continue, and we have played a key role in ensuring bedding-in and reflect our desire for safety, greater resident that the responsible parties carry out remediation works involvement and scrutiny. We have created a new Customer at the development. Safety Committee, Finance Committee and a Community Investment and Care Committee. Outstanding customer service

Our building safety programme The commitment of our customer service colleagues across the Group has resulted in some impressive improvements This year we have reiterated our clear commitment to in our performance. A focused team worked together to building safety and the numbers demonstrate our focus. reduce our empty homes letting time down from 22 to We invested £260m in building new homes and acquiring 16 days and our overall customer satisfaction level rose by stock and we invested a further £30m in enhancing the 10% to 83%. A 100% record on gas safety and managing safety and quality of our existing homes. The introduction arrears below 4% are great achievements and all come of the new Building Safety Regulator will be part of the from working together to get the job done. biggest change in building safety for a generation and we have mobilised a huge investment of expertise, time We are immensely proud of our care and supporting and funds to meet the challenge. We are taking action independence team at our extra care home on the Isle of and carrying out the building safety work needed. Wight for achieving an Outstanding CQC rating. The staff This year, we completed the work to replace the cladding at at 22 Argyll Street consistently excel with an innovative St Lawrence House in Reading and embarked on a number approach and stimulating activities and programmes of other substantial work programmes. This is likely to have for the adults with learning difficulties whose home it is. an impact on our finances for some time to come, but we are prepared for this and we know that making safety our A growing business priority is always going to be the right thing to do. The seeds of our Growth Strategy are germinating as Committed to our core purpose - a business with we focus on key areas where we can concentrate our social objectives support for communities, building and acquiring homes to form that critical mass that allows us to make a real We made the exciting move to bring our community difference. We issued the remaining £100m of retained investment and care and support services under one bonds from our £300m bond issue last year to support banner, Southern 360, which is making it easy to our development programme. Our strategic partnerships communicate the many ways we support our more with Homes England and the GLA have been a significant vulnerable residents across the Group and enabling us to boost to our capacity. As part of our structured growth give our residents a bigger voice within the organisation. we acquired 379 homes and handed over 419 new homes

4 / Introduction A clear commitment to building safety

from our development programme. We celebrated bringing Pandemic response in a bumper crop of new opportunities with six new development sites coming into the Group in December Returning to where we started at the beginning of this 2019, representing an addition to our existing development introduction, we have been so proud of the determination, programme of 474 new homes to be delivered over the big heartedness, dedication and resilience colleagues have next three years. Seventy-two percent of these will be shown in responding to the challenges of the Coronavirus affordable for the people and families who need them pandemic. Although this only hit at the end of the financial most. Across the year we had a total of 1,221 new homes period it has, nevertheless, had a profound impact on either in development or completed. our business. We moved the entire organisation to agile working over the course of just a few days. Working together Our performance We were delighted to make it into the Top 100 best not for profit companies at our first attempt this year. Our net surplus for the year was £23.3m compared with We achieved a star rating based on the nearly 70% of £38.6m in 2018/19, with an operating surplus of £62m colleagues who took part in the survey. which is a decrease of £10m compared with the prior year. Our operating performance was impacted by a number There was some amazing fundraising work by teams of factors, notably an increase in building safety spend throughout the year who amassed £41,428 for the of £8.2m, additional depreciation of £3.4m associated Group’s nominated four charities. That represents a lot with higher levels of investment, and the recognition of bake sales and dress down Fridays, sponsored walks of impairments totalling £2.8m at two schemes where and our first ever charity golf event. we have experienced rising build costs and unforeseen ground contamination. Our operating surplus was also This year we were saddened by the sudden deaths of adversely affected by economic uncertainty which resulted two valued colleagues within a short time of each other. in a loss on revaluation of our commercial property We remember Charlie Sargent, a Senior IT Engineer and portfolio of £5.9m. Jason Laing, a Financial Skills Officer in our Southern 360 team. Both colleagues were young, hugely popular and are very much missed by everyone who knew them.

Annual Report and Group Financial Statements 2019/20 / 5 Offsetting some of the pressure from operating cost We were delighted to welcome Crown Simmons to the increases and valuation losses, we achieved a £24m surplus Group on the first day of the new financial year – an from fixed asset disposals (2019: c. £10m). A little over half exciting step in the next phase of the Group’s story. came from the sale of 474 properties to another registered We have ambitious plans to do our bit to fix the housing provider in the last quarter of the year, linked to our asset crisis. The economic shock of the pandemic and the management strategy and Value for Money Action Plan. significant additional costs of building safety works means The bulk of the remainder was made up of staircasing sales that the days of large surpluses cross-subsiding our new which continue to perform strongly. homes programme are behind us for a while. But that doesn’t mean that our plans for growth are on hold – far In spite of some of the challenges evident in our from it. It does mean that we must redouble our focus on financial performance during the year, our financial value for money and take all the prudent steps required to position remains very strong, with a large balance sheet ensure we maintain our financial resilience. (£2.1bn of housing assets, reserves of £0.64bn), low gearing (40%), high numbers of unencumbered assets We have a vital role to play in the lives of people in housing (almost 9,000 units available for security), high levels of need and the communities we serve and we will continue liquidity and an investment grade credit rating. We are to fulfil our purpose through the difficult times ahead. well-positioned to meet the future challenges of building safety and sustainability and to capitalise on opportunities arising post-COVID, particularly in establishing new and innovative ways of working.

Arthur Merchant Alan Townshend Looking forward Chair of the Board Group Chief Executive

We had the results of the Regulator’s In-depth Assessment at the end of the year. A re-grade to V2 was in line with our expectations and reflective of an expanded development programme. Receiving a governance downgrade to G2 was a disappointment, particularly as we had already taken so many positive steps to strengthen our governance as an organisation. The good news is that we have agreed an improvement plan with the Regulator and we are looking forward to meeting those objectives. We remain confident in our future as a business with social objectives.

6 / Introduction Annual Report and Group Financial Statements 2019/20 / 7 01. Strategic review

8 / 01. Strategic review 01 WE ARE A BUSINESS WITH SOCIAL OBJECTIVES

Our social purpose

At our core, we exist to provide high-quality homes for people in housing need. Our purpose is to make our customers’ and their communities’ lives better.

Our vision

Our vision is clear – we want to be a trusted, caring landlord, listening to our residents, and building ever more high-quality homes in places people are proud to live.

About us

Southern Housing Group was established in 1901 and has grown to become one of the largest housing associations in the south east of England.

We house around 77,000 residents, own and manage over 30,000 homes and work with more than 40 local authorities. We employ over 1,000 people, offer a range of housing products for rent and sale, and undertake a wide range of activities to improve the lives of our customers.

Being a business with social objectives means we invest every penny we make and more into good quality homes and services for people in housing need. Over the last year we made a surplus for the year of £23.3m and invested £290m in existing and new homes.

Our strategy is to grow our business so that we can create value for our customers through the fulfilment of our social objectives.

Annual Report and Group Financial Statements 2019/20 9 BOARD KPIS

The Group’s Key Performance Indicators help the Board to monitor progress against the Corporate Strategy.

The 2019/20 Board KPIs:

Overall customer Void turnaround Rent arrears (%) satisfaction time (days) 83% 16 3.97%

2018/19 2018/19 2018/19 73% 22 3.90%

Gas servicing Emergency repairs Reinvestment (% complete) completed 100% 93% 12.9%

2018/19 2018/19 2018/19 100% 99% 7.7%

New supply (social) 1.2%

2018/19 1.1%

See page 67 for metric definitions.

10 / 01. Strategic review New supply (non-social) 1.0%

2018/19 0.5%

Gearing EBITDA Social housing (MRI) cost per unit** 40% 61% £5,620#

2018/19 2018/19* 2018/19 37% 136% £5,044

Operating margin Operating margin Return on capital (social housing) (overall) employed 16% 26% 2.6%

2018/19 2018/19 2018/19 23% 31% 3.3%

* Prior year comparative restated from 158% to exclude surplus on fixed asset sales. ** Excludes any impairment charges as these relate to properties that are still under construction. # Adjusted SHCPU excluding 381 units acquired in February 2020 and including 472 units sold to another RP in March 2020 is £5,567. Costs for the disposed units were incurred for the majority of the financial year and therefore, this adjusted metric is representative of the costs incurred during the year

Annual Report and Group Financial Statements 2019/20 11 OUR CORPORATE STRATEGY 2017-2020

We launched our three-year Corporate Strategy in 2017. The financial year 2019/20 was the last year we operated to deliver the objectives set in this strategy. Our new Corporate Plan was launched in 2020. The new strategy builds on the work we have done and moves us into a clear framework for measuring success.

The challenges we face as an organisation and the way we deliver our Corporate Strategy are informed by the political, economic and social environment that we work in. Every year we review our progress against the objectives we have set ourselves.

Our five Corporate Strategy 2017-2020 objectives

12 / 01. Strategic review Our five Corporate Strategy objectives are: #4 Excel at customer service

#1 Live by our values Our focus this year has been on improving our resident involvement and customer satisfaction. We get things done, we work together and we do the right thing. We continue to adapt to meet rising customer needs and expectations, and harness technological advances These values set out what colleagues expect of each other, to benefit our customers to make doing business and what our customers expect from us. When we are with the Group easier and more satisfying for under challenging and changing circumstances, these everyone, especially as household budgets are under values help us to deliver the best we can – because living constant pressure. our values is all in a day’s work. #5 Remain financially strong #2 Provide more quality homes We are financially strong as a business, however, This objective builds, quite literally, on our previous strategy we operate in a tough financial climate that is affected successes. London and the south east needs more new by politics and economics. We need to balance being homes of all tenures and our social purpose is to help commercially astute so that we can deliver our social meet these needs. We proudly reinvest every penny of our purpose – we are a business with social objectives. surplus in new and existing homes to provide well-designed, By operating commercially, we can generate a surplus quality, affordable, sustainable homes for our residents. to invest in new homes, maintain existing homes and offer services that make a meaningful difference to the #3 Stay safe and secure quality of our customers’ lives.

The safety of customers and colleagues has always been a priority, but after the Grenfell Tower fire and as we embrace agile working, we must ensure our residents and colleagues are safe and secure.

Annual Report and Group Financial Statements 2019/20 13 LIVE BY OUR VALUES

Our objectives

Meeting our objectives Our values inform everything we do

Our values set out what is expected of colleagues across We launched our corporate values three years ago the Group and what our customers expect from us. and we make sure that everyone understands and engages with them. When we are under challenging and changing circumstances, these values are our framework for These three simple phrases are easy to remember. delivering the best outcomes we can. They make sense to all our colleagues and work together, just as we work together to do the right thing and get Creating change doesn’t just happen. We believe each of things done. us needs to make choices which have the power to improve the way we work. Choosing what’s right, not what’s easy is We call our values: “All in a day’s work” because working true strength of character. this way is what we do – they define how we behave and how we make decisions. Our values are at the core of the Tackling challenging situations is always easier when we business and what it means to be part of the Group. share ideas and support each other. Working together is the difference between solving a problem after it’s Our values mean much more to us than just words. happened and staying one step ahead. They underpin our corporate DNA. We celebrated our shared values at an all colleague event held at Epsom Keeping promises sometimes means going above and Downs Racecourse in September. beyond to keep them. Finding solutions and making things happen is what sets us apart and helps keep our customers Over 700 colleagues attended the conference to work happy – it’s when we’re at our best. together in a series of activities to demonstrate what it meant to be part of our team at Southern Housing Group.

14 / 01. Strategic review A key focus for us was what we could do to improve our These included making improvements to the gas safety services to our residents. Over a hundred small groups of letters, streamlining the moving in process, and setting up a colleagues talked through possible ideas and our challenge forum for raising and sharing ideas to improve the resident was to develop the top three ideas which would have most experience. impact and benefit to residents.

Annual Report and Group Financial Statements 2019/20 15 Focus on awards for living our values

A highlight of the year for colleagues this year was the the fantastic achievements of teams across the Group who Group’s OSCARS – Outstanding Southern Colleagues have demonstrated that they are living the Group’s values Achievement and Recognition Scheme, which recognised on a daily basis.

Working Together award – The logistics of relocating colleagues between floors Spire Court refurbishment team (and offsite) whilst maintaining a fully operational service centre and finance function in addition to the normal The Horsham Facilities Team and the IT team day jobs were managed smoothly and professionally were nominated for their collaborative approach with much of the work being undertaken at weekends which enabled the Group to maintain business and in the evenings to minimise disruption. The teams as usual to customers and colleagues during the worked together – and with other colleagues across refurbishment of our Spire Court office over the the Horsham office – to deliver a fantastic new office previous 12 months. environment for everyone at Spire Court.

Getting Things Done award – Corporate Finance Team

This team spent the last two years helping the Group to unlock its financial capacity which allows us to develop and build new homes. They negotiated our existing borrowing arrangements with lenders, facilitated the Group’s first ever public bond issue for £300m and introduced a number of ways to access additional short-term funding at highly competitive rates. They have also managed the Group’s exit from the Social Housing Pension Scheme (SHPS) defined benefit scheme and transferred pensions in-house to our Group schemes which was both complex and challenging.

16 / 01. Strategic review Going the extra mile award – accompanying people back to their home and ensuring Initial Response Team at the Samuel they were ok to be left alone, with surveyors checking Garside House fire in Barking smoke detectors for peace of mind. That day, the team assisted 11 families to move back home. Being directly affected by fire is a devasting experience for people and the initial response During the following week, the team manned the team that supported our residents following the rest centre, supported individual residents who were fire at Samuel Garside House in Barking on traumatised and upset, liaised constantly with the local Sunday 9 June certainly went the extra mile. authority, the managing agent, the Red Cross and lots of other agencies to ensure our residents were looked The team was on site within a few hours and after and kept informed. We had a large team presence then worked into the early hours. By midnight at the rest centre and on site for at least the first two on the night of the fire, they had found temporary weeks, including weekends. The team helped with visits accommodation for all those 32 families that to residents still in hotels, queries at the rest centre and needed it. kept on top of everything from media enquiries to last minute announcements of visits from the Mayor of Three days after the fire, our block was declared safe London and the former housing minister, through to to return to. The team of staff assisted in supporting ensuring residents had access to halal food at hotels. residents with their move home. That included The team certainly went above and beyond to support getting shopping for those who might need it, residents by going those extra few miles.

Annual Report and Group Financial Statements 2019/20 17 Focus on awards for living our values

Doing the right thing award – 22 Argyll Street team

As part of the Southern 360 Care and Support Team, the team at 22 Argyll Street were nominated for always doing the right thing in their fantastic work supporting our residents. 22 Argyll Street is a registered care home and was awarded a Care Quality Commission outstanding rating for “the amazing care and support we provide to our residents with learning disabilities” there. It’s about doing the right thing for our residents, for the way the team is led and for our innovation and we recently introduced Caddie, our resident pet dog into the scheme. It is very difficult to achieve an outstanding CQC rating so this is a really impressive outcome. The team has also supported a resident with a work placement in the scheme, with the fantastic outcome of the resident now working part time at the scheme.

18 / 01. Strategic review Focus on the Group’s charity fundraising achievment

This was the Group’s first year with a formal Group-wide Charity Challenge 2019/20 panel chaired by Paula Steel, Head of Digital Strategy and Delivery and the grand total raised was over £41,000.

Four charities formed the focus of the year’s efforts, chosen by a poll of colleagues at the beginning of the year: the Amy Winehouse Foundation, Royal Marsden Hospital, Domestic Abuse Housing Alliance and Mind.

Colleagues across the Group took part in numerous fundraising activities, dress down Fridays, bake sales, tombolas, raffles and pub quizzes.

A sponsored Three Peak Challenge kicked off the goodwill and it grew from there.

The Group also ran its first ever charity golf day, which was very successful.

Special mention

One colleague in particular, Mike Janvrin, Senior Clerical Officer by day, ace charity fund raising pub quiz master by night, received an “Alan’s Accolade” for helping to raise hundreds of pounds for the Group’s charities. Mike was nominated by the entire Charity Challenge 2019/20 panel for working so hard to produce the most entertaining range of quiz questions and sharing his professional quiz skills. Mike’s efforts meant the charity quiz nights held at the Group’s Horsham offices and at Newport Cricket Club were a real experience for everyone taking part, as well as being fun and informative.

Mike’s effort and time enabled the charity panel members who organised the quiz nights to raise several hundred pounds for the Group’s four charities.

Annual Report and Group Financial Statements 2019/20 19 PROVIDE MORE QUALITY HOMES

Our objectives Key facts and figures:

• Use our capacity to build new homes 2019/20

• Make sure we meet our design and New households created 3,088 sustainability standards Total homes in construction 802 • Offer a range of tenures to meet diverse customer needs New homes handed over 419

• Provide more low rent homes for low Total homes managed by the Group 30,130 income households

Meeting our objectives

This objective builds, quite literally, on our previous strategy successes. London and the south east needs more new homes of all tenures, and our social purpose is to help meet these needs. We proudly reinvest every penny of our surplus in new and existing homes to provide well-designed, quality, affordable, sustainable homes for our residents.

20 / 01. Strategic review Tenure mix

The Group’s homes managed by tenure type

As an organisation, our aim is to continue to provide the majority of our homes on an affordable basis. In order to be able to do this, we cross-subsidise the building of new low rent homes with the surplus generated from other affordable and market sale homes.

Using our capacity to build new homes Building new homes and provide more low rent homes for low income households This year we completed 419 new homes and began work on 799 further new homes. This year has seen significant activity in the Group’s development and growth programme as the Group ramps up its drive to provide 7,000 more homes by 2029. A minimum of 60% of these homes are intended to be for low income households.

Annual Report and Group Financial Statements 2019/20 21 New homes by tenure 2019/20

Acquisition • Improve the quality and long-term value of our existing stock and public realm to the benefit of This year the Group acquired 379 homes from another existing residents. housing association. The homes are located primarily in the Group’s key target growth areas of West Sussex • Maximise the use of our existing land and buildings. and Hampshire. The programme has been in operation for two years and Hidden Homes programme in that time has identified and gained approval to progress to consultation and planning for five schemes totalling 190 The Group’s Hidden Homes programme is assessing all additional homes, including 166 new affordable homes. of the Group’s stock to identify 500 ‘hidden homes’ through developing under-utilised land on existing The programme continues to assess potential sites. estates, or regeneration of estates where the buildings Customer and community consultation and support is are no longer fit for purpose. Buying land for housing key to the success of this programme. Consultation and development is challenging. The Group’s Hidden Homes community engagement for all hidden homes projects programme is driven by the desire to: are carried out in accordance with guidance from the GLA and the Group’s own processes. • Improve the living conditions of our residents and create mixed-tenure communities. Hidden Homes represents value for money because the Group doesn’t have to buy the land. This allows • Create sustainable estates – socially, environmentally us to develop a much higher proportion of affordable and economically. homes than would otherwise have been possible. The open market cost of land for the 190 Hidden • Grow the size of the Group’s stock and be more Homes so far identified is estimated to be £13.7m. cost-effective.

22 / 01. Strategic review Focus on a Hidden Homes scheme

The Mannings “The Mannings is a great example of how Shoreham-by-Sea, West Sussex brownfield developments that include genuine regeneration can deliver real benefits for 74 homes Shoreham. This scheme will help to revive a local area, promote cleaner transport and The Mannings was originally a poorly designed improve housing options for local people.” estate suffering from damp and condensation. Cllr Brian Boggis The decision was taken to redevelop in Adur District Council’s consultation with the residents and planning executive member for regeneration permission was granted in November 2019.

Residents are being supported into new homes whilst the development is in progress. Everyone has a right to return.

Annual Report and Group Financial Statements 2019/20 23 Focus on adding value through the Strategic Partnership programme

Britannia Music Site

Situated in Redbridge, a borough with a need for genuinely affordable shared ownership and rented homes and a target growth area for the Group, this development delivered 148 homes with 73 for affordable rent and 75 for shared ownership.

Acquired in December 2017 and completed in October 2019, this is part of a wider development by Durkan Ltd and M&G real estate.

The Group originally bought 93 homes and subsequently purchased an additional 55 homes for shared ownership adding further value into the GLA programme. These additional 55 homes The development delivered had originally been destined for private sale by 148 homes with 73 for affordable rent the developer. and 75 for shared ownership.

24 / 01. Strategic review Outside London: Longcross Phase 2 and Cranleigh

The simultaneous and linked purchase of both Longcross Phase 2 and the Cranleigh developments in Surrey, presented an opportunity for the Group to add 25 affordable rented (AR) homes and 89 shared ownership (SO) homes in two strong sales areas with good employment outside London in locations where the Group aims to increase its stock.

Whilst the Group’s preference is for land-led schemes, a small number of Section 106 schemes do provide a balanced risk approach across the Group’s development portfolio and both the Longcross and Cranleigh developments are good Longcross Phase 2 has a total of 35 units, examples of schemes which the Group is actively with a mix of seven homes for affordable rent delivering well in excess of the requirements of the and 28 shared ownership homes. Section 106 agreements.

The combined portfolio in these sites provides a Cranleigh has a total of 79 new homes, balanced mix of one, two, three and four bedroom with a mix of 18 homes for affordable rent and homes, adding a total of 48 Section 106 homes 61 shared ownership homes. to our build programme and providing an extra 66 shared ownership units in the Homes England Strategic Partnership programme.

Longcross Phase 2 has a total of 35 units, with a mix of seven homes for affordable rent and 28 shared ownership homes, of which 23 are part of the Homes England Strategic Partnership programme. Cranleigh has a total of 79 new homes, with a mix of 18 homes for affordable rent and 61 shared ownership homes, of which 43 are part of the Homes England Strategic Partnership programme.

Both schemes are on site and the Group is looking to take handover of the first new homes in August 2020, with handovers continuing throughout the year and into early 2021.

Annual Report and Group Financial Statements 2019/20 25 Stock map

26 / 01. Strategic review Annual Report and Group Financial Statements 2019/20 27 Sustainability

We are committed to reducing our impact on the environment and to providing comfortable, energy efficient homes with low running costs for our residents. We do this through our Environmental Sustainability Strategy and Policy which helps us to ensure that we build high quality homes with low energy consumption, low maintenance costs, promote energy efficiency and contribute towards the elimination of fuel poverty by improving the thermal efficiency of our homes and properties.

Our current strategy runs until 2022, but in 2019/20 our Environmental Sustainability Strategy Group started to review it in response to the evidence base and mounting concerns about climate change.

Key facts and figures

• Average SAP rating for new homes built in 2019/20 was 84.7, a year on year increase of 1.6.

• The overall SAP rating for all SHG stock is 72.4, a year on year increase of 0.6.

Our target is to sustain an overall SAP rating of at least 71 annually between 2018 and 2022.

Fuel poverty advice service

Our Home Energy Advice service has been merged with our Financial Inclusion Service within our Southern 360 Community Investment Team, and a new role of Fuel Poverty Advisor was created in 2019/20, to support vulnerable residents at risk of fuel poverty.

28 / 01. Strategic review Focus on biodiversity and estate care

Part of the Group’s Environmental Sustainability Strategy is to encourage the development and use of green spaces, promote native species, and support biodiversity at our new and existing sites.

We have partnered with the UK Centre for Ecology & Hydrology to trial an 18 month project in order to increase biodiversity on our three estates in Bracknell. We have planted over 28 native plant species, installed 18 bird, bee and bat boxes and transformed over 1.5 acres of land to animal friendly habitat, such as wild flower meadows.

Lessons learned from this project will be shared across the Group’s estates and with other housing associations across the country via an online toolkit.

“This is a great opportunity to work with experts in the field of biodiversity to learn how to maximise the use of our land. This work gives us an opportunity to assess what we are planting and ensure that we are being mindful and positively contributing to the ecosystem.”

Patryk Szczerba Sustainability Manager

Annual Report and Group Financial Statements 2019/20 29 Southern Housing Group Streamlined Energy and Carbon Reporting (SECR) 2019/20

Under changes introduced by the 2018 Regulations, large unquoted companies are obliged to report their UK energy use and associated greenhouse gas emissions as a minimum relating to gas, electricity and transport fuel, as well as an intensity ratio and information relating to energy efficiency action, through their annual reports. Southern Housing Group is not a company but has opted to voluntarily disclose its energy use on a similar basis.

Carbon footprint in corporate offices, buildings and in communal areas

For the purpose of this SECR Carbon Report, the Group has included gas and electricity usage for the financial year

2019/20 for the offices listed below and included intensity ratios (kgCO2e per office square meters) where available.

Total CO2e emissions for our offices from gas and electricity usage was 571.87 tnCO2e. Energy efficiency actions taken included improving energy management of buildings through controls, data and staff behaviour change campaigns.

Office Energy usage Carbon Footprint Intensity ratio

Fleet House, 59-61 Clerkenwell Road, Electricity: 268,933 kWh 68.74 tnCO2e 18.48 kgCO2e/m² London, EC1M 5LA Gas: None

Spire Court, Albion Way, Electric: 872,315 kWh 310.91 tnCO2e 43.50 kgCO2e/m² Horsham, West Sussex, RH12 1JW Gas: 478,371 kWh

The Courtyard, St Cross Business Park, Electricity: 57,942 kWh 21.15 tnCO2e 22.91 kgCO2e/m² Newport, Isle of Wight, PO30 5BF Gas: 34,480 kWh

The Oasts, Newnham Court, Bearsted Road, Electricity: 67,573 kWh 17.27 tnCO2e Maidstone, Kent, ME14 5LH Gas: 478,371 kWh

Bow River Village, 2 Pintle Place, Hancock Road, Electricity: 17,331 kWh 4.43 tnCO2e London, E3 3UP Gas: None

Courtney King House, 169 Eastern Road, Brighton, Electricity: 38,230 kWh 137.70 tnCO2e East Sussex, BN2 0AP Gas: 695,805 kWh

Hooper Court, 4 The Hard, Portsmouth, PO1 3PU Electricity: 16,330 kWh 4.17 tnCO2e Gas: None

Mount Pleasant, 251 Mount Pleasant Lane, Mount Electricity: 29,334 kWh 7.50 tnCO2e Lane, Bracknell, RG12 9AB Gas: None

Total emissions 571.87 tnCO2e Methodology

Carbon emissions from electricity = electricity usage in kWh x emission factor 0.2556 kg CO2e.

Carbon emissions from gas = gas usage in kWh x emission factor 0.18385 kg CO2e.

30 / 01. Strategic review Carbon footprint from staff mileage

Total CO2e emissions from staff mileage (for business use) was 383.42 tnCO2e, that is 0.3064 kg CO2e per mile.

This was calculated using the mileage and emissions factors below:

• Motorbike (125cc to 500cc) petrol = 1,712 miles x 0.16559 kg CO2e emission factor

• Staff car (1.4L to 2.0L) petrol = 1,238,124 miles x 0.30945 kg CO2e emission factor

• Pedal cycle = 11,268 miles x 0 kg CO2e emission factor

Energy efficiency actions taken

• Promoting video conferencing • Promoting cycling through campaigns • Improving bike storage facilities in offices.

Carbon footprint from fuel used in fleet vehicles and company cars

Total CO2e emissions from fleet vehicles and company cars mileage was 254.55 tnCO2e, that is 0.3820 kg CO2e per mile. This was calculated using the mileage and emissions factors below:

• Van Class I (up to 1.305 tonnes) petrol = 654,293 miles x 0.38207 kg CO2e emission factor

• Company car (type Executive) petrol = 11,998 miles x 0.38075 kg CO2e emission factor

No specific energy efficiency actions taken.

All of the conversion factors used in this report are in accordance with the Government’s emission conversion factors for greenhouse gas company reporting: https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2019

Annual Report and Group Financial Statements 2019/20 31 STAY SAFE AND SECURE

Our objectives • Developed risk-based matrix to enable us to prioritise the order in which we will undertake fire safety reviews • Maintain and improve the safety of our homes across our business. • Improve our estates and living environments • Keep our colleagues safe • Agreed an additional number of fire specific roles – to • Be a great place to work support the work we are undertaking – able to address the Hackitt Report and Fire Act outcomes Meeting our objectives • Annual internal audit across each of the six key areas The safety of our customers and colleagues has always of compliance – to ensure we address changing risk been a priority, but after the Grenfell Tower fire and as we robustly and maintain levels of statutory compliance. embrace agile working, we must ensure our residents and colleagues are safe and secure. Key facts and figures

Maintaining and improving the safety of % complete our homes Fire safety In November 2019 the Group’s new Customer Safety Committee was formed with oversight of all safety related Fire Risk Assessments (FRAs) 99% matters - buildings, staff and reportable incidents. FRA P0 (critical) actions 100% Key building safety actions Gas servicing 100% • Introduced a Primary Authority providing expert fire safety advice, undertakes joint inspections with the Electrical - communal 99% Group, works with the fire brigade on the Group’s behalf to ensure the right level of safety is in place. Water (legionella testing) 100%

• The Group's Building Safety Programme is in place – Asbestos survey 99% in line with updated guidance we have enhanced our building safety works by commencing intrusive fire safety reviews (EWS1 and Type 4 FRAs) on all the Group’s buildings over 18m.

• Budget – spent £8.2m more than was originally budgeted to enhance safety across hundreds of buildings.

• Ongoing data validation and reconciliation processes – enhanced reporting to better provide assurance on risk. Enhanced set of monthly KPI’s produced.

32 / 01. Strategic review Focus on the Group's Building Safety Programme

Building safety is a key focus for the Group. The Group’s Building Safety Programme In November 2019, the Group formed a Customer Safety Committee (CSC) as part of the new Background governance structure. The CSC has oversight of all safety related issues including buildings, staff, Following the fire at Grenfell Tower in June 2017, and reportable incidents. the government issued a series of advice notes intended to provide guidance to building owners about how Key actions by the Group have been the introduction to make sure their properties are constructed and of a primary authority which sets our national maintained safely. The government has asked the Health standard for building safety and the Group’s Building and Safety Executive (HSE) to establish a new building Safety Programme. safety regulator in the wake of the Grenfell Tower disaster and following recommendations in the ‘Building Creation of the Group’s Primary Authority a Safer Future’ report by Dame Judith Hackitt.

Principle aims of the services The new regulator will oversee the safe design, construction and occupation of high-risk buildings, The objectives of the Group’s Primary Authority are so that residents are safe and feel safe. It will be to provide expert fire safety advice, undertake joint independent and give expert advice to local regulators, inspections with the Group and work with the fire landlords and building owners, the construction and brigade on the Group’s behalf to ensure the right building design industry and to residents. level of safety is in place. Actions taken Partnering with Hampshire Fire and Rescue Service, the Group has agreed to work together to improve our In response to these evolving guidelines, Southern national fire safety policies and practices in our homes Housing Group has been systematically checking all and buildings across the UK in a way that will: its tall buildings to ensure that they comply with the government’s building safety guidelines. • support the agenda for bespoke fire safety arrangements specific to the Group’s requirements This has involved procuring and commencing intrusive fire safety reviews (EWS1 and Type 4 FRAs) on all of its • achieve better regulation through fewer routine tall buildings over 18m. The Group owns or manages inspections of the Group’s premises 44 tall buildings and the programme will extend to approximately 1,400 buildings in total. Buildings are • be robust enough in its structure to meet robust prioritised for survey using a risk-based analysis. challenge from other enforcing authorities. As well as providing the necessary assurance for • utilise and publicise assured advice within lenders and identifying required remedial works, the scope of the statutory publicly available the programme begins the process of assembling specification (PAS), as regulated by the Office the body of evidence required to support the building of Product Safety and Standards. safety case for each of the Group’s tall buildings, which will be needed by the new Building Safety Regulator.

Annual Report and Group Financial Statements 2019/20 33 Focus on the Group's Building Safety Programme

Existing homes We have clarified the scope of services we expect from our architects and engineers by describing On top of the Group’s existing safety works budget, responsibility matrices, naming the individuals who a further £8.2m was included to enhance safety across are accountable for designing various building elements hundreds of buildings. and those responsible for detailed decisions affecting building safety. In addition, this will feature The Building Safety Programme for existing in the Group’s build contracts and will include clear homes provides: stipulation on the specialists who may install fire- stopping and provide the evidential standard required • Ongoing data validation and reconciliation processes for future reference. – enhanced reporting to better provide assurance on risk. Enhanced set of monthly KPI’s providing clear The “Golden Thread” of building information ongoing controls. To tie all of these activities together, we are adopting • A risk-based matrix to enable the Group to prioritise more advanced technology and processes. As innovators the order in which it will undertake building safety in the sector, we are rolling out Building Information reviews across our business. Modelling (BIM) processes across the development programme to drive quality and the delivery of the • A specialist building safety team “Golden Thread” of building information to ensure every new home is safe. • Annual internal audit across each of the six key areas of compliance, ensuring the Group addresses changing risk robustly and maintains levels of statutory compliance.

New homes

The Group is responding to the government’s Building a Safer Future agenda proactively.

For example, in March 2020, the Group elected to install sprinklers in all new homes above 11m instead of 30m wherever feasible, nearly eight months ahead of any regulatory requirements. The Group has enhanced dozens of other technical fire precautions above and beyond regulations.

Cultural and process change is a key challenge identified in Building a Safer Future for the new Building Safety Regulator. Anticipating the changes that are coming, the Group is adopting a holistic view of the complex process of design and construction and exerting more control over its service providers.

34 / 01. Strategic review Improving our estates and living environments

Introducing our new Estate Care team

We know that customers are more satisfied in schemes where we have directly employed caretakers and cleaners. As part of a systematic review of our service delivery, we looked at providing more value through activities like cleaning and gardening via an in-house service.

Following the success of four innovative estate care pilot projects which focused on how we can better maintain and improve the living environments on our estates, provide better services and deliver excellent value for money, we have rolled out this in-house service across our London estates. The next phase is planning to extend coverage to all of our estates. Benefits of the in-house team Our pilot projects included an innovative project addressing fly-tipping and bulky waste that saw significant • Mobilising resources to deal with emergencies or improvements in recycling rates. urgent issues – with the estate care service in-house, we are better equipped to react quickly when issues or emergencies arise. A good example of this arose during the year when we experienced a serious water outage. We were able to deploy staff at the weekend and early mornings to assist residents and contractors on site, as well as help with water tanker deliveries.

• Improving management of bulk rubbish – our in-house London team are able to react quickly and are working with much improved procedures.

• Creating a new team has meant that colleague engagement is higher and aligned with the Group’s values – working together, doing the right thing and getting the job done. Team members have received accolades for stepping up when needed, working outside regular hours and in particularly difficult circumstances.

• Improving resident satisfaction, exceeding the targets that were set for the London team at the end of the quarter. The positive change in customer satisfaction across all three services has been significant – cleaning up 14% to 76%, gardening up 16% to 79% and communal repairs up 19% to 73%.

Annual Report and Group Financial Statements 2019/20 35 Keeping our colleagues safe and being a great place to work

Key facts and figures Our people are key to our success and we invest in activities and programmes to ensure we can attract, recruit, develop and retain talented people within our business. 2019/20 2018/19

In September, around 700 colleagues from across the Number of employees 1,085 1,069 Group came together for a staff conference entitled “All Together Now”. The Chair of the Board and several Best Companies board and committee members attended together with Employee engagement rate Index (BCI) score 73% colleagues from Crown Simmons. 661.9 The theme of the conference was working together to

BME 23% BME 17% understand our residents better. Diversity Female 59% Female 51% Disabled 10% Disabled 5% During the group work, which focused on customers called “people like us”, the customer insight team gathered hundreds of ideas and suggestions which form the core Gender pay gap summary 15.6% 18.8% part of our service improvement project going forward.

We also celebrated the long service of colleagues across the Group with milestones ranging from 5 years to 40 years – some colleagues working at Southern Housing Group before others were born.

36 / 01. Strategic review The Group’s People Strategy

Our People Strategy has been developed to achieve our feedback is also really open and honest – we acknowledge objective to be a great place to work for every colleague, where we haven’t got things right and we are open about no matter where they work across the Group. learning by doing the right thing and making changes where we need to. This means more than ensuring that the right boxes are ticked. It’s about making sure our plans fit with our Growing talent culture and values and that we listen to feedback from colleagues which helps us to shape these plans. We want We really believe in growing our own talent. Our strategy to work together to do the right thing for colleagues focuses on helping people to fulfil their potential and across the Group. ensure that we give everyone opportunities to learn and achieve. We have a huge range of training and Our culture and values are really important to us. We are development initiatives on offer, but we also want people proud to be a business with social values. We want to to get involved in job shadowing colleagues across the attract people into the Group for whom this is as important Group and give something back through volunteering. as it is for us, and who want to be a part of what we are We want to develop a coaching culture, with opportunities here for. We work hard to make this an exciting, rewarding to learn from coaching and mentoring to ensure that all and supportive place to work and one which encourages colleagues can take the next steps in their careers. and celebrates a rich diversity of backgrounds, cultures and experience. Empowering people

Our philosophy - it’s ok to be you We know how frustrating red tape and rigid processes can be and so we are always looking for ways to empower our Our approach to equality, diversity and inclusion is that people in their day to day roles and enabling them to make “it’s ok to be you” and colleagues are encouraged to feel the choices and decisions that make sense to get the job confident to bring their whole selves to work. done. Having the right data and information is key to good decision making. We are working to ensure that the right Rewards and benefits information to help manage teams successfully is always accessible to managers digitally whilst maintaining privacy. We know that people also like to feel rewarded properly for the work they do, so we are reviewing our pay and benefits to ensure that we are pitching our offer at the right level and supporting our culture and values by doing the right thing on pay and rewards.

Listening to our colleagues

Our values are about working together, doing the right thing and getting things done. It is really important that everyone has a voice and that there are many ways of getting views across and to feel heard. Communications are important so that no matter where colleagues are based, everyone can access the latest news and ideas and feel a part of the bigger team. The Group Staff Forum plays a key role in understanding and channelling feedback. Our survey

Annual Report and Group Financial Statements 2019/20 37 Wellbeing Group Staff Forum

Feeling part of a great place to work means looking out The Group Staff Forum (GSF) is the formal body that for everyone and supporting their wellbeing. We want our represents the interests of the staff on a range of colleagues to be safe and feel safe whether in one of our consultative matters, as well as providing advice and offices or hubs, or working on an estate or a scheme. We guidance to individual colleagues as required or raising know that people will sometimes need a little extra help matters on their behalf. It is important that colleagues and support with situations that happen both at work have a collective voice with the Group’s Board and the and in their home lives. We want to be there to listen and Chief Executive attends all the GSF meetings and meets to help guide colleagues when they need it with support regularly with the Chair to discuss organisational issues. from leaders and managers across the Group, as well as professional specialist advice from the HR team. The Group Staff Forum has increased its membership this year to ensure that the representative seats continue to We understand that everyone has a life outside work and reflect the structural changes of the Group. The Chair it is important to make sure that people have that work life of the Forum also has a position on the Remuneration & balance. We are keen to support this through opportunities Nominations Committee. The GSF continues to provide a to work more flexibly and on an agile basis for whatever valuable resource to the Group. works for individuals and their teams.

Benchmarking and oversight

The Board oversees Key Performance Indicators for our People Strategy which, in addition to oversight of monthly operational HR KPIs, includes progress with key initiatives. The focus for the current year has been on embedding our values and culture, as well as our approach to pay and rewards. We also benchmark the Group’s performance compared to external kitemarks and awards.

Being part of the top 100 Best Companies to work for is part of this benchmarking.

38 / 01. Strategic review Focus on Focus on listening to colleagues equality, diversity and Best Companies and inclusion survey results

Our second equality, diversity and We launched our Best Companies employee survey inclusion colleague conference at the staff conference in September. The response rate was 67% and raised over £700 for the Group’s The Group has a clear focus on equality, diversity nominated charities as the Group donated £1 for and inclusion. Diversity statistics are improving and every survey received. the Group’s gender pay gap is decreasing. But we know that there is still work to do to improve on this. The survey results revealed that most colleagues are very positive about working for the Group. The Group held its second ED&I conference in Colleagues at all levels in the organisation believe November, attended by the Chief Executive and with that the Group is keen to help people from the Group’s Senior Independent Director, Carol Rosati disadvantaged backgrounds and make a positive OBE giving the keynote speech. difference to the world we live in. Colleagues are proud to be a business with social objectives. It was a positive day and diversity champions heard They feel a connection to the Group, and believe about the progress of the Group’s five networks that the Group cares about how satisfied individuals - Women’s; Prism (LGBTQ+); Parents and Carers feel in their jobs. Colleagues think that training and Together (PACT); Disability; and Black Asian and development is of great benefit to them personally Minority Ethnic (BAME). The commitment we gave and there are further opportunities to improve on at our first conference last year was to support the this by encouraging managers to help their teams to creation of the network groups and it was great to fulfil their potential. Colleagues also tell us that they see how the individual networks have developed have untapped skills or that they are keen do more and grown over the past year. The networks are to support the Group in different ways. supported by the ED&I Advisor but they are co- ordinated, managed and led by the network chairs The Group was listed in the Best Companies to ensure that the focus remains on what is important Top 100 Not for Profit Employers for 2020, placing to the relevant network members. One of the main 83rd out of 100. This is a great achievement for outcomes of the conference was to develop action the Group in its first year of completing the Best plans to take the work of the networks forward, Companies survey and it provides a good external drawing on the input and expertise of a diverse benchmark to compare with other companies in the range of colleagues who shared their experiences not for profit sector. and perspectives.

NETWORK

Annual Report and Group Financial Statements 2019/20 39 EXCEL AT CUSTOMER SERVICE

Our objectives Key facts and figures:

• Listen to our customers 2019/20 2018/19 Number of customer enquiries processed via 79,134 79,035 • Do the basics brilliantly phone, email, webchat and customer portal

Customers surveyed a month 626 600 • Make it easy to do business with us Incoming calls handled 224,963 212,000

• Provide products and services that meet the needs Net Promoter Score 42 26.1 of our different customer groups Net Ease Score 27 19.1 Meeting our objectives Overall customer satisfaction 83% 73% Satisfaction with repairs 83% 79% Customer service values A busy year in customer services saw demand rise and Our vision is to excel at customer service and our customer the Group improve in all of its customer service KPI's. service values build on the Group’s values to set out how The customer service strategy has lead to a significant we are working to achieve this. increase in overall customer satisfaction, as well as a 61% increase in the net promoter score for the Group’s net ease scores.

40 / 01. Strategic review Annual Report and Group Financial Statements 2019/20 41 Listening to residents

Committed to resident involvement across Resident Involvement Strategy the Group The Group’s Resident Involvement Strategy has been revised This year we have reviewed our approach to how we and strengthened. It prioritises communication, repairs, involve our residents and developed a new involvement service and respect. model, strengthening the voice of residents in improving our services. The new structure is designed to reflect greater Board oversight. Based on the outcome of extensive resident consultation, we have established a Residents Scrutiny Panel supported by a Steering Group, with representation from residents across the Group’s geography and tenures. The Steering Group sits within our governance structure. A range of local and specialist consultation forums supports this structure ensuring our residents’ voice can be heard at every level.

42 / 01. Strategic review Annual Report and Group Financial Statements 2019/20 43 Resident consultations Resident Involvement Consultation

Over the year, resident consultations have covered a wide During the summer of 2019, the Group’s resident range of topics, policy reviews and areas of interest: engagement team visited over 50 estates and neighbourhoods to ask our residents and customers • Garden competition resident judging what was important to them. • Unacceptable behaviour policy review • Transfer policy (priority moves policy) The team spoke to over 450 residents through surveys and • Service charge and rent booklet consultation face-to-face meetings and received over 1,000 comments. • Repairs digital login consultation Appointments to the Resident Scrutiny Panel (21 residents) • Estate inspection and the Steering Group (six residents) were made, following • International tenants’ day 60 applications for the roles. Over the weekend of the 24 • Focus groups on anti-social behaviour to 26 January 2020, residents from the Scrutiny Panel and • Focus groups on developing our customer service offer Steering Group (the highest levels of involvement) met • Green Paper on social housing (to help shape the together for the first time. They engaged with the Group Group’s response to the Green Paper consultation) Chief Executive, the Resident Involvement Team and the Director of Community Investment and Care.

44 / 01. Strategic review Annual Report and Group Financial Statements 2019/20 45 Doing the basics brilliantly

Letting our homes faster – from 22 to 16 days in a year

One of the key ways we get the basics right is by letting our homes quickly, so that we can ensure people in need of housing are able to move to homes they desperately need.

This is a core function of a good landlord and one we take seriously, which means making sure we do this quickly.

The end result of the improvement is that we meet customers’ needs and avoid losing valuable income, which we reinvest in new homes for people in housing need.

Last year we reduced the time it takes to let our homes from 22 to 16 days. How did we make the change?

This was achieved by teams working across the organisation, working together and living our core values.

At the beginning of 2019, a project group from across several teams identified a number of key areas that would help us let our homes faster, from pre-moving out inspections so that our contractors would be able to pre-plan the works required, to using DocuSign which meant our tenancy agreements and other tenancy information could all be signed electronically.

We also used our data so that we could focus our improvements in areas we knew were taking too much time.

In addition to this, we updated our empty home standard so that now we automatically redecorate sheltered housing properties and also redecorate the kitchens and bathrooms of our general needs homes.

46 / 01. Strategic review Making it easy for customers

One of the aims for customer service is to make it easy for customers to deal with the Group. This year has seen a significant rise in the Group’s net ease score. We know that making it easy for our customers can often be as simple as doing the basics brilliantly, so this year we’ve focused on doing just that.

Our residents have told us that some of the letters we send out about planned health and safety works to their home can be difficult to read, as they sometimes contain too much technical information and jargon. So, we’ve improved these letters by making the language simpler, removing the jargon and adding more information about the things that really matter, such as how to prepare for the work to start.

Providing the answer to these frequently asked questions means that our customers have the information they need, straight away, which definitely makes it easier all round.

Similarly, we’ve updated key information relating to 40 of our services and frequently asked questions onto our website, which means that the answer to many simple and common enquiries can now be found online. "We know that making it easy for our customers can often be as simple as doing Considering accessibility the basics brilliantly so this year we’ve focused on doing just that." We’ve made sure that it’s easily accessible to those using screen readers and spent time considering how we can Lily Monk get residents to the information they need as quickly Customer Operations Director as possible. We know that not all of our residents want to go online for this information, and we’re still at the end of the phone when they need us, but having this information online makes it easier for our customers to get the information they need, in a way that suits them.

Annual Report and Group Financial Statements 2019/20 47 Community Investment and Care

Making lives better, supporting independence and improving communities is at the heart of what we do as an organisation.

Community Investment £1.1m 217 invested our communities customers received employment and skills support 17,698 £209,249 customers benefited from our community of social value gained from investment support our supply chain 1,664 171 referrals supported by our financial inclusion volunteers supporting residents, communities services and community projects £3,632,991 income generated for the benefit of customers

48 / 01. Strategic review Supporting Independence Independent Living and Care for Later Life 576 2,500 customers supported to remain independent residents helped to feel safe and secure in their own homes in sheltered housing 350 £21,400 customers and more supported worth of handyperson hours provided at in the community no costs to residents 96% £426,453 of our customers told us our services helped them grants provided to support community activities to remain independent in schemes

All of our care services currently rated 95% Outstanding of our customers felt treated with dignity and respect or Good* *By the Care Quality Commission (CQC)

Annual Report and Group Financial Statements 2019/20 49 Southern 360 – making lives better

From community initiatives, employment and financial skills Independent Living for Later Life support, to providing housing for later life, and delivering care and support services that help people live independent The Group’s Independent Living for Later Life properties lives, the Group’s community investment and care offer is provide housing for 2,500 of our older residents, with staff broad and impactful. based in schemes providing a daily on site presence, giving our residents that feeling of safety and security that our This year, the Group demonstrated its continuing residents have told us is so important to them. commitment to supporting customers with the launch of Southern 360 – a banner to bring together our Sheltered, Supporting Independence and Care Team Care and Support, and Community Investment services. The Supporting Independence and Care team provides The Group’s strategy is to make its core support services care and support to our vulnerable residents on the Isle of easily recognisable and simple to find. People come to Wight. They deliver a range of services including providing the Group for support at various stages of their lives support to single homeless people and homeless families, therefore bringing all of these services together makes people with mental ill health and vulnerable young people sense. Demonstrating commitment to our communities and enabling them to live independently, either in their own residents, the Group will be able to attract more outside homes or in one of our supported housing schemes. funding to our community and support projects so we can do even more for our residents. Highlights 2019/20

These services are a key part of the Group’s service, • Homecare Services and Byrnhill Grove were awarded supporting the organisation in its delivery of our social ‘Good’ ratings by CQC in September 2019. objectives, and making a positive difference to the lives of some of our most vulnerable residents. • Homecare Services were recognised as ‘outstanding’ for well-led. Community Investment • SI&C successfully applied to run the Duke of Our Community Investment team creates opportunities Edinburgh's Award seeking to actively engage our for residents - supporting with budgeting and money young people in meaningful activities. management, accessing employment and skills training, and a range of other services and projects to help people • Supporting Independence Day 2019 was a fantastic sustain their tenancies and improve the quality of life for event, well attended, and an excellent opportunity to individuals and communities. The Group also has a grants celebrate our customers. programme to support these objectives and extend our reach, helping to build inclusive and thriving communities.

50 / 01. Strategic review Focus on tackling food poverty

The Group partnered with the Guinness Partnership and the charitable foundation of Clarion Housing Group to open London’s first community food pantry on a housing estate.

The St Giles Food Pantry was officially launched in September 2019.

The event was attended by a local councillor Kim Taylor-Smith and chef, food writer and recipe developer Dominique Wood who demonstrated a recipe for the residents.

The pantry is the first of its kind in London and is serving the residents of each partner’s housing estates in South Kensington. "The St Giles Food Pantry is a fantastic Residents are now able to access high-quality example of what partnership working can groceries supplied by FareShare in return for a achieve and how it can benefit communities.” £3.50 per week membership fee. Alice Webster, Customers can join the scheme through a referral from Group Community Investment Services Manager one of the pantry’s recognised partner organisations.

Annual Report and Group Financial Statements 2019/20 51 Focus on making a difference – PopUp Business School

“The instructors from PopUp are so energetic Last October, we teamed up with Sovereign Housing and re-sparked my enthusiasm to ‘just get Association and the PopUp Business School to provide going’ and start selling. I am just so, so pleased self-employment sessions helping residents to bring I came across PopUp and I can honestly say it’s their business ideas to life. changed my life!

Through a series of free-to-attend workshops, we showed residents on the Isle of Wight how I feel so proud that I’ve made the leap into to develop business ideas, promote their businesses, setting up my own business and I know I create websites and manage finances. wouldn’t have done it if I hadn’t attended PopUp.” More than 75 members of the local community came together to empower each other and develop PopUp participant Joanna, their diverse business ideas. who set up her own lingerie business in Kent

52 / 01. Strategic review Focus on innovation in care

Virtual reality

Our IT Team joined forces with colleagues at Byrnhill Grove, one of our residential care homes on the Isle of Wight to try out an innovative approach to care for dementia patients – virtual reality.

Following a visit to the home earlier this year, the Group’s IT Team worked with the Southern 360 Care and Supporting Independence team to look at some research that showed that using virtual reality headsets could reduce depression and anxiety in people with dementia. The technology provides patients with stimuli they wouldn’t normally be able to experience due to mobility issues and cost. This can lead to a reduction in hostility towards staff and Number 22 Argyll Street isn’t just home help to recall old memories which may have faded to the people living and working there, over time. After a short and successful trial, the it’s also a welcome base for Caddie a Group has invested in some virtual reality headsets two-year old black Labrador. to use at Byrnhill Grove. The team will also be supplying more to the Group’s sheltered homes at The benefits of walking a dog had been discussed Furze Break, and in Ryde Village when it opens. for a while with all the residents and the team. “Then we thought a step further,” said Emma. Everyone involved has been delighted that the latest “We are just like one big family and as most families technology can be put to such good use. have pets, we thought why not our 'family’ too?”

Fate also played an important role when Emma and team member, Dani Fischer, Deputy Manager were attending a dog training class attended by Carol Court, the founder of the Island’s charity Ability Dogs for Young People (AD4YP). Carol responded to the request by providing Caddie who hadn’t passed the rigorous training required of a fully qualified ‘jacketed’ ability dog.

“Caddie is a wonderful addition to the household,” said Emma, “Having him around is great, especially when spending one to one time with a resident on one of Caddie’s walks. It’s a lovely way to spend quality time with someone without the pressure of being completely focused on them, it’s a win-win all round.”

Annual Report and Group Financial Statements 2019/20 53 Focus on community

“The programme has helped me to realise Many Sisters is an exciting new project that aims to that I still have so many life goals I would build financial resilience and create a unique community like to achieve. I would like to succeed in space for Black, Asian, Minority Ethnic and Refugee my life. And that’s what the Many Sisters (BAMER) women within local communities. project is helping me with.”

The project is run by a small team of four women who work within the Group’s Community Investment Runi Begum team to provide support services for at least 350 Runi is a BAMER woman and a mother who took part in the programme BAMER women, many of whom live in London’s most deprived areas. Prior to the launch, Many Sisters began by listening Five months ago, Many Sisters was given enough and engaging with BAMER women in their local funding to make this project happen, through a funder communities and holding a range of fun, capacity with a focus on East London – the boroughs of Tower building activities – including a four-week ‘cooking on a Hamlets, Hackney and Newham. budget’ course on an estate in Tower Hamlets.

The aim of the the Many Sisters project is to provide The feedback so far has been extremely positive. support and intervention to prepare women for difficult financial life shocks, such as a change in benefits or unexpected bills, and prevent these from having the serious impact they so often do.

54 / 01. Strategic review Focus on outstanding care

The Group’s registered care home, 22 Argyll Street on the Isle of Wight was awarded “Outstanding” by the Care Quality Commission this year.

22 Argyll Street is home to nine adults who all have either a learning disability or an autistic spectrum disorder.

The CQC inspection considers the following standards: safety, effectiveness, care levels, responsiveness to people’s needs and leadership.

The CQC report highlighted that Emma Bound, Registered Manager and her team stand out:

• Staff provide services that go the extra “Our residents are as delighted as we are that mile to provide a family orientated and their home has been graded as outstanding. homely environment. We really are a motivated team and each of us brings something different. We’re always full • Highly skilled and knowledgeable in caring of ideas as to how we can make life interesting for people with additional needs. and enjoyable for our residents and we pride ourselves on delivering high quality, person- • Strong relationships between the team and the centric care so everyone gets the attention residents where everyone knows each other. they need.”

• Understand and meet residents’ needs and Emma Bound aspirations creatively, especially regarding Registered Manager enhancing skills, interests and independence.

• Residents are listened to, understood and • Excellent observance of safeguarding standards respected by the team. and the team understand their responsibilities.

• Fully committed to ensuring the services provided • Care is given in a relaxed and unhurried way. are continually improved. • Technology is used proactively to both support • Have strong links with the residents’ friends, people’s safety and for communication needs. families and wider community.

Annual Report and Group Financial Statements 2019/20 55 02. Financial review

56 / 02. Financial review 02 GROUP FINANCIAL PERFORMANCE

Highlights

Every penny of our surplus and more is reinvested in our existing homes and services, as well as the provision of new homes, and we continue to use our capacity to meet growing housing need. This year £260m was invested in the delivery of new-build homes as well as acquisitions of stock, and we invested a further £30m in enhancing the safety and quality of our existing homes. Our top priority remains the health, safety and wellbeing of our residents and along with £10m spent during the year on building safety, we invested £1.1m in our communities.

This level of investment is supported by the consistent generation of surpluses, grant receipts from our strategic partnerships with Homes England and the Greater London Authority and careful treasury management, which included the issuance of £100m of retained bonds in May 2019.

Reinvestment of Group surplus

2019/20 2018/19 2019/20 2018/19 Investment £m £m Funding £m £m

In existing homes 30 25 Surplus for the year 23 39

In new homes 260 165 Treasury management 236 157

In the business 5 10 Grant and other 36 4

Total 295 200 Total 295 200

Annual Report and Group Financial Statements 2019/20 57 Turnover

Turnover for the year totalled £236.8m, £6.4m higher than the prior year. The effect of the final year of government-mandated rent reductions of 1% for social and affordable rent properties was partially mitigated by the addition of 913 homes to our rented housing stock during the year. Social housing lettings continue to constitute the majority of turnover from operations at 69% (2018/19: 70%). Whilst shared ownership sales income was lower than last year at £15.2m (2018/19: £24.9m), open market sales were higher totalling £47.3m (2018/19: £35.4m). The fluctuations in these figures reflect year-on-year tenure variations in our development programme.

Percentage of turnover by activity

2019/20 2018/19 2017/18 2016/17 2015/16

Social housing lettings 69% 70% 78% 78% 87%

Other social housing activities 9% 13% 16% 12% 7%

Non-social housing activities 22% 17% 6% 10% 6%

58 / 02. Financial review Operating surplus

Group financial performance

2019/20 2018/19 2017/18 2016/17 2015/16 £m £m £m £m £m

Turnover 236.8 230.5 199.7 200.2 177.5

Cost of sales (47.3) (39.3) (27.9) (24.2) (10.0)

Operating costs (145.7) (129.3) (122.6) (111.3) (110.0)

Surplus on disposal of fixed assets 24.0 9.7 11.1 13.6 19.3

Investment property valuation (5.8) 0.6 3.0 20.5 5.2

Operating surplus 62.0 72.2 63.3 98.8 82.0

Net funding costs (38.4) (32.8) (22.0) (31.9) (31.9)

Taxation (0.3) (0.8) 3.6 (4.9) 0.0

Net surplus for the year 23.3 38.6 44.9 62.0 50.2

Overall operating margin 26.2% 31.3% 31.7% 49.4% 46.2%

The Group's overall operating surplus was £62.0m compared with £72.2m for the 2018/19 year and margins decreased from 31.3% to 26.2%. Operating costs increased by £16.4m, of which £8.2m was directly attributable to increased investment in building safety, as we continued our inspection and remediation programme, ensuring the ongoing safety and wellbeing of our residents. Depreciation has increased by £3.4m compared with the prior year, as a result of increasing investment in new and existing homes and in the modernisation of our business systems. In addition, during the year we have recognised impairment charges totalling £2.8m on two of our development schemes as a result of unforeseen ground conditions and increased build costs.

The increased investment in building safety coupled with the cumulative impact of four years of rent reductions has put downward pressure on underlying social housing operating margins, which finished the year at 16.1%, below last year's closing position of 23.2%. During the year, the Regulator of Social Housing published its Rent Standard 2020-2025 which allows registered providers to increase rents for existing tenants with effect from 1 April 2020. The Group has the lowest average weekly rents of its peer group of London-based housing associations, the G15, and this continues to have an adverse impact on social housing margins and our ability to fund growth from our core social housing business. We have taken the decision to increase rents by CPI + 1% from April 2020, in line with the provisions of the Rent Standard.

Annual Report and Group Financial Statements 2019/20 59 Operating surplus (continued)

We have continued our strategic approach to asset management in the year, rationalising our areas of operation to increase the efficiency with which we deliver services to our customers. A total of 474 units were sold to another registered provider, generating a surplus of £12.6m to be reinvested in new and existing homes. Demand from our residents for an increased ownership share in their homes remained strong, with our surplus from staircasing receipts totalling £10.2m during the year (2018/19: £9.0m).

The impact of economic uncertainty caused by both Brexit and COVID-19 has been felt in our investment property valuations, which this year have experienced a net reduction of £5.9m (2018/19: £0.6m gain).

The net surplus for the year of £23.3m (2018/19: £38.6m) also reflects a rise in funding costs to support the early years of our expanded growth and development programme, which aims to deliver 7,000 homes over the next nine years.

Surplus and margin by business line

2019/20 2018/19 2017/18 2016/17 2015/16 £m £m £m £m £m

Social housing lettings:

Operating surplus 26.2 37.1 39.8 48.4 47.1

Margin 16.1% 23.2% 25.6% 30.9% 30.5%

Other social housing activities*:

Operating surplus 0.9 3.6 3.0 7.4 5.3

Margin 4.7% 12.3% 9.4% 34.0% 40.1%

Non-social housing activities:

Operating surplus 19.5 21.2 6.3 8.8 5.1

Margin 36.2% 51.9% 52.4% 40.4% 50.8%

* Excluding the figure for impairment as this relates to properties still under construction

60 / 02. Financial review Group financial position

Net assets have increased by £23.4m to £643.9m during the year, further enhancing the Group's historically strong financial position. Long-term borrowing has increased to £1,701.0m from £1,564.4m, but gearing remains low relative to peers at 40.4% (2018/19: 37.0%). The increase in financing has funded the development of 419 new homes during the year (2018/19: 315). It also financed the acquisition of 379 homes from another registered provider.

2019/20 2018/19 2017/18 2016/17 2015/16 £m £m £m £m £m

Non current assets

Property, plant and equipment 2,112.0 1,975.9 1,873.9 1,809.3 1,750.3

Investment properties 143.3 106.9 108.9 78.8 47.4

Other investments 19.0 19.2 24.3 22.2 21.0

Net current assets 82.7 92.2 31.7 130.0 145.0

Total assets less current liabilities 2,357.0 2,194.2 2,038.8 2,040.3 1,963.7

Long term liabilities (1,701.0) (1,564.4) (1,445.6) (1,496.4) (1,481.1)

Provision for liabilities and charges (3.5) - (1.4) (0.2) (0.1)

Pensions (8.6) (9.3) (8.7) (9.9) (8.3)

Total net assets 643.9 620.5 583.1 533.8 474.2

Total reserves 643.9 620.5 583.1 533.8 474.2

Assets held for sale totalled £22.1m at the end of the year (2018/19: £15.7m) representing 15 unsold units for open market sale and 128 shared ownership units. Of these, 4 open market and 14 shared ownership sales have subsequently completed in April and May 2020, in spite of the challenges posed by COVID-19 and the government's moratorium on house moves at the beginning of the new financial year. Units unsold at the year end for a period of six months or more, represent 14% of the total units handed over during 2019/20.

Annual Report and Group Financial Statements 2019/20 61 Treasury and capital structure

The Group maintains a treasury management policy With the exception of local authority loans totalling £60m whose principal purpose is to monitor and control the which are unsecured, all remaining facilities are fully cost and risk associated with our treasury management secured on the Group's housing properties. In accordance activities. This policy is an important element of our with the annually approved treasury strategy, we actively governance framework and prescribes our approach to manage levels of property security to optimise the use of the management and mitigation of liquidity risk, interest the Group's assets in supporting our funding requirements. rate risk, credit and counterparty risk and any refinancing At the year end, the Group had a total of 8,891 risk arising from the maturity profile of our debt portfolio. unencumbered properties available as security. Compliance with loan covenants is regularly monitored by the Board and we have remained compliant with all Of the £977.9m drawn debt at year end, 85.5% was at our covenants during the year, forecasting continued fixed rates of interest and 14.5% at variable rates, well compliance over the life of our long-term financial plan within the requirements of the treasury management (a period of 30 years). policy. The weighted average cost of funds as at 31 March 2020 was 4.15%. The Group has no stand-alone derivatives We draw our funding from a range of different sources to or exchange rate exposure. provide a diversified funding structure. Total facilities as at 31 March 2020 were £1.4bn, comprising a mix of loan Our primary objective in relation to investments is the facilities and bond finance. Of these facilities, £437.1m security of capital and this is prioritised over returns. remained undrawn at the financial year end, comprising The treasury management policy outlines the requirements revolving credit facilities capable of draw down within 48 relating to the long-term credit rating of any counterparty hours. Refinancing risk is actively managed and at 31 March together with limits on the value of the sums invested. 2020 we had £646.0m (46%) of our loan portfolio expiring in the next five years, of which £481.9m relates to revolving The Group maintains an external credit rating with credit facilities. We anticipate these facilities to be rolled Moody’s which was downgraded from A2 to A3 in forward as they fall due. September 2019, with a change in outlook from negative to stable. The rating reflects our credit strengths which Cash balances totalled £58.9m at 31 March 2020 including include our large size, strong balance sheet and liquidity £10.4m of ring-fenced cash deposits and balances. position, whilst acknowledging the strategic shift to more The treasury management policy requires us to maintain ambitious growth which will increase debt, development sufficient cash and committed loan facilities capable of and market sales risk over the near-term. immediate draw down to cover the next 18 months' committed cash flows, excluding any forecast sales income. At the financial year end we had 22 months of forward cover for these commitments.

62 / 02. Financial review Funding mix (drawn debt)

Interest rate mix

Summary of the Group’s liquidity

Annual Report and Group Financial Statements 2019/20 63 Group liquidity management

Facility maturity

Available Average cost facilities of funds £437.11m 4.15%

Outlook

We are financially strong with high levels of liquidity and are forecast to remain so over the coming years.

In common with businesses throughout the country, we have been carefully managing our response to the COVID-19 emergency in the first few months of 2020/21 to ensure that we minimise the risks to our staff, customers, finances and operating models. We are developing plans to adopt new and innovative ways of working in the longer term which we hope will support a more climate-friendly approach to the future working life of our staff.

The government has set a net zero target for carbon emissions by 2050 and we are including the impact of this in our long-term financial plans, alongside our continuing commitment to building safety. Our financial capacity and resilience mean we are well-positioned to meet these challenges.

64 / 02. Financial review VALUE FOR MONEY

We are committed to driving value for money in all our activities, maintaining our strategy to increase investment in new and existing homes and to optimise the returns generated from all areas of our operations.

Value for money is explicitly embedded in our decision-making processes and we don’t just measure our success by the cost of delivering services, but by their outcomes for our customers. Rather than maintaining a separate value for money strategy, we embed value for money objectives in all our core business strategies which together support the delivery of our overall Corporate Strategy.

#1 Live by our values

We know that attracting, recruiting and retaining the right staff is critical to building an organisation that can achieve its ambitions for its customers. In 2019, we took the decision to bring our recruitment service in house so that we could directly reach a wide and diverse pool of skilled candidates and reduce reliance on agency partners. Our Value for Money Action Plan 2019/20 targeted a reduction in recruitment spend of £675k from insourcing this service and, despite a delayed start, savings of £446k were achieved by the end of the year. #2 Provide more quality homes

Our Corporate Strategy is explicit in its aim to provide homes of all tenure types to ensure that we meet a wide range of housing needs. During the year, we completed 419 new homes and began work on 802 more, across a wide range of tenure types including social and affordable rent, shared ownership and open market sale units, together with units for private rent. Our overall tenure mix is detailed on page 21 and our strategy is to provide 7,000 more homes by 2029. We will continue to deliver a balanced programme, using the cross-subsidy model from market-facing products to keep our social and affordable rents as low as possible. Our investment appraisal process ensures that schemes are designed to address local needs and options are subject to rigorous financial assessment against Board-approved internal thresholds that include measurement of financial payback, NPV and IRR, set within a governance framework that includes the Group’s Development Committee and Board.

Annual Report and Group Financial Statements 2019/20 65 Value for money is a key component of our Development Strategy. We look to drive procurement efficiencies from our contractor and consultant frameworks, grow our in-house technical and commercial expertise and deliver homes to a higher construction quality with fewer defects. In addition, we recognise the strategic importance of opportunities that exist with properties and land we already own. Our Hidden Homes programme which started in 2017 is on track to deliver an additional 190 plots with an approximate land value of £13.7m.

Our in-house construction arm, Southern Housing Construction Limited, commenced trading in June 2018 to deliver construction services to the Group on smaller sites where cost-effective build services are harder to source. It is now on site at a mixed tenure scheme of flats and houses in Hove, East Sussex, building 33 new homes for shared ownership and affordable rent, with an overall completion date of March 2021. This subsidiary has generated a surplus of £0.1m during the year.

Our Growth Strategy focuses on the consolidation of new homes, either constructed or acquired, within existing management areas, to maximise the benefit of our established infrastructure and reduce our management cost per unit. A key element of this strategy is the rationalisation of our stock in areas where we don’t have the presence to deliver the most cost-effective service to our customers. During the year we sold 474 properties in non-strategic areas for the Group to another registered provider, generating a surplus of £12.6m to be reinvested in new and existing homes and services. #3 Stay safe and secure

Maintaining and improving the safety of our homes and our residents remains our top priority. We made an important addition to our governance structure in 2019/20, introducing a Customer Safety Committee whose remit is to oversee the Group’s customer health and safety and compliance obligations, including related asset management.

We have used our surpluses to make significant investments in building safety during the year, spending more than £8.2m on building safety measures including surveys, inspections and remediation works. During the year, we completed the removal and replacement of aluminium composite material (ACM) cladding at one of our tall buildings - St Lawrence House in Reading.

We remain committed to delivering the highest standards of building safety compliance. Gas servicing was 100% compliant at the year end for the second consecutive year, demonstrating the efficiency and effectiveness of our processes across multiple business areas, including customer safety, housing management and estate care. Electrical certificates for communal areas were in place for 99% of our affected properties (2018/19: 99%). In 2019 we began a five year programme to ensure in-dwelling electrical safety certificates are in place across our homes and at the year end 28% of this programme had been completed against a target of 20%.

In accordance with our asset management strategy, our maintenance and investment programmes are based on dynamic component data. At the end of the year we had increased the percentage of homes surveyed to 81% of our stock and this data-led approach enables us to realise the full potential lifecycle of an asset.

66 / 02. Financial review #4 Excel at customer service

We are committed to listening to our customers and using their insight to improve our services. Our resident involvement strategy is centred on customer engagement to improve our understanding of customer needs and the quality of our service. We have created two new groups to increase levels of customer involvement: a Customer Scrutiny Panel which has a direct line to the Board of Southern Housing Group, and a Steering Group which will help shape our services. In January 2020, residents from these newly formed groups met for the first time to consider the Group’s approach to handling customer complaints, customer communications and customer experience.

Satisfaction with overall levels of service provided by the Group have increased significantly compared with last year, with 83% of customers rating the service as a 4 or 5 out of 5 against a target of 80% (2018/19: 73%). In all, 717 complaints were made during the financial year to 31 March 2020, a 33% reduction on the prior year.

It is also important to us that we make sure our empty homes are turned around quickly, so they can be re-let to a new resident or family as soon as possible. Our redesigned approach to voids management continues to drive improvement in this important measure of operating efficiency and we are pleased to report a void turnaround performance of 16 days for 2019/20 (2018/19: 22 days) against a target of 19 days.

93% of emergency repairs were completed within 24 hours against a target of 98% (2018/19: 99%). The decrease in performance compared with last year was mainly due to the repair requiring more than one visit.

2019/20 2018/19 2019/20 2020/21 KPI target target

Overall customer satisfaction 83% 73% 80% 85%

Void turnaround time (days) 16 22 19 17

Rent arrears % 3.97% 3.90% 5.00% 4.00%

Gas servicing % complete 100% 100% 100% 100%

Emergency repairs completed 93% 99% 98% 98%

Indicator Definition Overall customer satisfaction The overall % of customers satisfied with the service. with service % Voids turnaround time (days) Average number of days taken to re-let a property (general needs, affordable rent, and supported housing only). Rent arrears % All current arrears as a percentage of rent due in year. Gas servicing % The number of properties with a valid gas certificate at the end of the period divided by the number of properties on contract. All tenures. Emergency repairs completed % The percentage of emergency repair jobs completed within 24 hours. Reinvestment % Investment in properties (existing stock as well as new supply) as a percentage of the value of total properties held. New supply (social) % The number of new social housing units that have been acquired or developed in the year as a proportion of total social housing units. New supply (non-social) % The number of new non-social housing units that have been acquired or developed in the year as a proportion of total social housing units and non-social housing units owned at period end. Gearing % The amount of debt held over the value of housing assets. EBITDA (MRI) % Earnings Before Interest, Tax, Depreciation & Amortisation (major repairs included). Indicates the level of surplus generated compared to interest payable. Social housing cost per unit The sum of social housing operating expenditure divided by the total number of units under management. It includes service charge costs, routine maintenance costs, planned maintenance costs, major repairs expenditure, capitalised major repairs expenditure, and any other (social housing letting) costs, or other operating expenditure. Operating margin (social housing) % Operating surplus/ (deficit) from social housing lettings divided by turnover from social housing lettings. Operating margin (overall) % The surplus/ (deficit) from all operating assets before exceptional expenses are taken into account. Return on capital employed % Operating surplus as a percentage of total assets less current liabilities.

Annual Report and Group Financial Statements 2019/20 67 #5 Remain financially strong

The generation and reinvestment of surpluses and the delivery of value for money are explicit in our Corporate Strategy. Our Value for Money Action Plan 2019/20 challenged us to deliver increased value of £15.8m in areas including stock rationalisation, voids management, operating model changes and reductions in management expenditure. £13.8m of this was delivered in year with further value realised in the first few months of 2020/21, notably from the completion of our stock rationalisation activities.

A further £0.7m of value was generated in year from the introduction of a dedicated commercial lead in IT, together with the insourcing of legal disrepair cases.

A target of 5% was set for tenant arrears, an increase from the actual performance of 3.90% achieved in 2018/19 in recognition of more claimants applying for Universal Credit. Actual arrears for 2019/20 were 3.97% and, compared with target, provided the Group with an improved cash position of £1.6m.

During the year, the Board has received regular reporting on the Group’s performance against its Key Performance Indicators and these include the seven value for money metrics published by the Regulator of Social Housing. The table shows our performance against these regulatory measures compared with our sector peer group, the G15, which represents the largest London-based social landlords.

Southern Housing Group Southern Housing Group G15 average 2019/20 2018/19 2018/19 Reinvestment 12.9% 7.7% 6.2% New supply (social) 1.2% 1.1% 1.8% New supply (non-social) 1.0% 0.5% 0.8% Gearing 40.4% 37.0% 46.4% EBITDA MRI 61.2% 136.0%* 131.8% Social housing cost per unit £5,620** £5,044 £5,392 Operating margin (social housing) 16.1% 23.2% 32.2% Operating margin (overall) 26.2% 31.3% 24.6% Return on capital employed 2.6% 3.3% 3.0%

*Prior year comparative restated from 158% to exclude surplus on fixed asset sales. **Adjusted SHCPU excluding 381 units acquired in February 2020 and including 472 units sold to another RP in March 2020 is £5,567. Costs for the disposed units were incurred for the majority of the financial year and therefore, this adjusted metric is representative of the costs incurred during the year

We continue to maintain gearing well below our peer average and our measure of reinvestment has increased significantly compared with last year, growing from 7.7% to 12.9%, as we continue our strategy to develop more homes and invest in the quality and safety of our existing stock. The impact of our additional expenditure on building safety this year can be seen in a higher social housing cost per unit and in a social housing margin that is markedly lower than the prior year at 16% (2019: 23%). Our overall operating margin was impacted by a reduction in sales margins compared with last year. The driver was the particularly strong performance from open market sales at three schemes in 2019 which drove an overall sales margin of 48% compared with 29% in 2020 (target 32%). EBITDA MRI (which excludes any surplus from property disposals) was impacted by the above factors, as well as a full year of the interest costs associated with our bond issues in October 2018 and May 2019.

68 / 02. Financial review Outlook

Our financial position remains very strong, but we recognise that we have work to do to improve our social housing lettings performance. Challenges arising from a sharp increase in building safety spend, set against historically low rents compared with our peer group, drove a margin in our social housing business of 16% compared with a target of 20%. We have set a minimum target for efficiency savings in 2020/21 of £2.5m and have directorate plans in place to deliver these savings. We are assessing rental levels across our portfolio and have a project underway to improve the recoverability of service charge costs with a target to achieve a cost neutral position by the year ending 31 March 2022.

We have launched a new Corporate Plan for 2020 to 2023 which outlines our priorities for our homes, customers, communities, people and resources over the next three years. Value for money principles are embedded in each of these areas and the plan is explicit in its objective to improve how we use our resources to provide value for money services to our customers.

Specific measures are attributed to each area of the plan so that performance can be continuously assessed (and some of our targets for the 2020/21 financial year can be seen in the table on page 67). Other examples include: the number of homes delivered; the level of reinvestment in the Group’s properties; the ratio of proactive to reactive maintenance spend; the energy efficiency of the Group’s stock; levels of customer satisfaction and numbers of complaints; levels of community investment and the numbers of people helped by financial inclusion services; levels of employee engagement; and the level of overhead per social housing unit. In addition, we are targeting sustained improvements in two important financial measures: EBITDA MRI, so we can maximise our investment capacity, and social housing lettings interest cover, so we can ensure that all our funding costs can be met from our lowest risk activities.

This is not an exhaustive list, but it serves to illustrate the central position that value for money occupies in the Group’s long-term strategy. The continuing careful stewardship of the Group’s resources will enable us to fulfil our aim to provide high quality homes for people in housing need and improve the lives of our customers and their communities.

Annual Report and Group Financial Statements 2019/20 69 CORPORATE GOVERNANCE

The Group’s legal structure

*Crown Simmons joined the Group on 1 April 2020

Southern Housing Group Limited (“Southern Housing holds 100% of Affinity (Reading) Limited which was set Group” or “the Group”), the parent company, is a up to operate a Private Finance Initiative contract to deliver charitable organisation and both it and Southern refurbishment, management and maintenance of 1,318 Home Ownership Limited are registered providers of Reading Borough Council homes. affordable housing and are regulated by the Regulator of Social Housing. Southern Development Services Limited provides project delivery services for companies in the Group. Southern Space Limited has a one third share in Triathlon Homes LLP, which owns over 1,300 affordable homes Spruce Homes Limited is a wholly owned subsidiary of at the East Village, the former Olympic Park. The Group Southern Housing Group Limited providing homes for has managed this stock on behalf of Triathlon since private rent. November 2019. Southern Housing Construction Limited is a wholly owned Southern Housing Group Limited has an overall 50% subsidiary of Southern Housing Group Limited and provides share in Affinity (Reading) Holdings Limited which in turn, construction services to the Group.

70 / 02. Financial review The Group’s governance and management structure in 2019/20

The Board

The Group’s Board is collectively responsible for The Board has delegated the operational management the long-term success of the Group. The Board has of the Group and its subsidiaries to the Chief Executive a formal schedule of matters specifically reserved for the and the Executive Management Team and holds them to Board’s decision. account. They meet at least five times a year to address operational and business activities and hold at least one These include matters relating to: annual seminar to discuss strategic issues.

• Determining the strategic direction of the Group The Board also has overall responsibility for the and setting out its mission, vision and values administration of sound corporate governance throughout • Approving higher level strategies, long-term plans the Group and recognises the importance of maintaining a and objectives to achieve the vision strong reputation for the Group. • Financial control • Risk appetite and management • Governance and the system of delegation • Monitoring the Group’s performance • Accountability to stakeholders

Annual Report and Group Financial Statements 2019/20 71 Southern Housing Group Board members

CHAIR

Arthur Merchant

became Chair of the Group Board in July 2016. He is a former partner and Head of Housing for Grant Thornton UK PLC. He specialised in the provision of external and internal audit, business planning, governance and risk management services to the housing sector for over 20 years. His client portfolio also included the local authority, NHS and education sectors. He is a qualified accountant [CIPFA] serving as a member of their housing association panel for over 10 years. Arthur is an experienced non-executive director having served on the boards of the Hertfordshire Chamber of Commerce, Mind and three other large housing providers. His experience includes chairing Audit and Treasury Committees and being part of the non-executive working group/committee successfully achieving substantial renegotiation of loan covenants and refinancing at two housing associations. He has been a regular speaker at major housing events and conferences.

MEMBERS

Simone Buckley

joined the Group Board in July 2015. She was previously Chair of the Group’s South Region Resident Services Panel and a Customer Services Committee member. Simone is currently a member of the Group's Customer Safety Committee and provides a link with the Group’s Customer Scrutiny Panel. Simone has over fifteen years’ experience working within blue chip organisations both in the UK and Australia, specialising in change management, communications and business integration.

Robert Clark

chairs the Group’s Development Committee, having joined the Board in July 2017. He has been a qualified member of RICS since 1974 and retired as CEO of Durkan Ltd in 2016. As Managing Director and CEO, he was responsible for the management of all construction projects, business planning and HR management. His board and committee experience has included joint-venture companies, housing associations, construction skills training, The Housing Forum and The Hertfordshire Housing Conference.

Joanna Hawkes

joined the Board in July 2017 and chairs the Group’s Finance Committee. She has over 30 years’ experience in the private sector having worked with a number of blue-chip companies in differing sectors in corporate finance and treasury roles. This has included asset finance roles within Hilton International and as treasurer of rolling stock lessor Angel Trains. She recently left the role of Group Treasurer of Marks and Spencer plc to take up a role as Director of Corporate Finance at Transport for London. She is a fellow of the Association of Corporate Treasurers and a qualified accountant. She is also Chair of the Finsatra DB pension scheme.

72 / 02. Financial review Janet Collier

chairs the Group’s Audit and Risk Committee, having joined the Board in September 2018. She is a CIPFA accountant with over 30 years' public sector experience. She has worked at a number of local authorities in both housing and corporate finance and was previously Deputy Chief Executive and Director of Finance at City West Homes. She has also worked as a consultant providing financial consultancy and training for public sector organisations, especially on social housing finance and value for money. She is now an experienced non-executive having been a board member and Chair of Audit Committee at another housing association and is currently also a board member and Chair of Audit and Risk at Advance Housing and Support.

Alfons Dankis

joined the Board in April 2020 and is Chair of Crown Simmons Housing Association, a subsidiary of the Group. Al retired as Group Finance & Planning Director of the Guinness Partnership in 2010. He has considerable experience as a non-executive director in the housing sector and is also a board member and Chair of the Audit Committee at Wandle Housing Association.

Abi Gray

joined the Board in September 2019 and chairs the Group’s Remuneration and Nominations Committee, having served on the Committee for 2 years. Abi has 10 years' customer services experience, specialising in building customer centric cultures by empowering employees to deliver excellent customer service. Abi is a qualified coach, counsellor and a specialist in employee engagement. Abi joined the Board in September 2019 and was previously also a member of the Customer Services Committee.

David Lewis

chairs the Group’s Customer Safety Committee. He joined the Group Board in September 2019 and has over 25 years' asset management, regeneration and procurement experience in local government, Arm’s Length Management Organisations (ALMOs) and housing associations. David has held both non-executive director and director positions for G15 housing associations and currently runs his own consultancy providing asset management and property services support to the housing sector. David is a member of the Chartered Institute of Housing and RICS.

Annual Report and Group Financial Statements 2019/20 73 Southern Housing Group Board members (continued)

Carol Rosati OBE

is the Board’s Senior Independent Director (SID). She has over 25 years’ experience of talent management and workforce development, focusing on diversity and inclusion. She is currently Lead Equality Diversity and Inclusion specialist at the Met Office. She is also a qualified executive coach and runs her coaching business v2 Coaching. Carol joined the Group Board in 2014 and chaired the Remuneration and Nominations Committee from 2016 to 2019, before being appointed as SID. Carol also chairs Spruce Homes, one of the Group’s subsidiaries. She is also Vice Chair of UN Women UK and chairs their Nominations Committee. In 2020, she also joined the Board of Alliance Homes based in Somerset. She was awarded an OBE in the Queen's 2015 Birthday New Honours List for Services to Women in Business.

Alan Townshend

has over 32 years of experience in the affordable housing sector, working with both public and private companies and running his own consultancy firm. Alan became Group Chief Executive in September 2018, having previously been Group Development Director for three years. Prior to joining the Group, Alan worked at Wandle Housing, initially joining as its Asset Investment Director before being appointed Interim Chief Executive Officer and overseeing the operational and strategic side of the business. His other roles include seven years at Circle Group as Group Regional Operations Director. Alan is a member of the Chartered Institute of Housing.

Mary Watkins Baroness Watkins of Tavistock

joined the Board in July 2018 and is the Chair of the Group’s Community Investment and Care Committee. She has extensive board experience in the housing and health and social care sectors, including another housing provider and chaired the Quality and Governance Committee at South Western Ambulance Service Foundation NHS trust, where latterly she was Deputy Chair and Senior Independent Director. Her experience has involved significant changes to the businesses in which she has been a board member including the amalgamation of two NHS providers and two housing associations. She is a qualified nurse, has held a University Senior Deputy Vice Chancellor position and published extensively in the fields of health and social care. She is a Visiting Professor at King's College London. Mary was appointed a Crossbench Life Peer in 2015 and speaks regularly on housing issues.

MEMBERS WHO LEFT THE BOARD IN 2019/20:

Maureen Corcoran (retired July 2019) James Francis, Group Finance Director (resigned May 2019).

74 / 02. Financial review Appointments and current annual payment rates

Southern Housing Group Limited Board members are paid for their services. This increases our ability to attract and Role Salary retain high-calibre members and to improve mechanisms for their performance appraisal and development. Group Chair £25,000

The Remuneration and Nominations Committee last Member and Chair of committee £12,000 reviewed Board member remuneration in February 2020. or subsidiary board

The Remuneration and Member £10,000

Nominations Committee Additional payment for £2,000 appointment process Senior Independent Director Independent committee member £3,000 The Remuneration and Nominations Committee has delegated authority from the Board to oversee all Board and committee appointments and succession planning. The Group’s policy on equality and diversity is that all candidates must be treated as individuals, irrespective of The Committee maintains a skills matrix for all board and ethnicity, nationality, national origins, disability, sexual committee functions: orientation, religion or belief, marriage or civil partnership, family circumstances, political beliefs, gender, gender • Conducting regular gap analysis, the Committee reassignment, pregnancy or maternity status, trade union identifies when the need to recruit arises. Where a new membership, age, or any other distinction. appointment is required, the Committee conducts a search for candidates through a number of appropriate channels, including open advertising via social media Directors’ and officers' platform LinkedIn and paid advertising in recognised non-executive recruitment websites. liability insurance cover

• Recommendations are then made to the Group’s Board The Group maintains liability insurance cover for its for final approval. directors and officers comprising the standard cover provided as part of its National Housing Federation • Board and committee appointments are made on membership fee and takes an additional £5m in cover merit, against objective criteria and with due regard to under a separate independent policy. the Group’s equality and diversity policy.

• Appointment letters contain details of the time commitment required for the position.

On appointment, a declaration of other interests is made and renewed annually and where there are any changes through the year.

Annual Report and Group Financial Statements 2019/20 75 Committees

The Board delegates authority in certain matters, The Committee reviews the pay of executive members of according to specific terms of reference, to six committees. the Board, by comparison with G15 peers, using a simple Committee members bring a wealth of experience and salary approach reflecting the strategy of the Group which different skills to the organisation, providing a clear overview balances both short and long term objectives whilst ensuring which helps to focus the Group’s management on achieving remuneration remains simple, transparent and provides value its strategic objectives. Each committee meets at least four for money. In reviewing this area the Committee gives due times a year. consideration to pay ratios and gaps assuring proportionality and alignment to the Group’s culture. Executive directors Audit and Risk Committee are eligible to receive non-contractual rewards available to the Group's entire workforce at the discretion of the The Audit and Risk Committee recommends the Remuneration and Nominations Committee in connection appointment or reappointment of our external auditors, with organisational performance. The only Executive Director considers the audit approach taken and reviews findings. on the Group Board is the CEO, whose pay is published in The appointment of the external audit firm is re-tendered the financial statements. at regular intervals. This Committee reviews the annual financial statements of the Group before recommending Finance Committee them to the Board for approval. It is responsible for reviewing the Group’s internal controls and its risk management The Finance Committee receives and reviews in detail framework, and regularly reviews the Group’s top risk quarterly management accounts and cashflow reports, register. It also regularly reviews all external and internal audit the annual budget and periodic reforecasts and the Group’s and similar reports and provides constructive challenge to the long-term financial plan and associated stress testing and Executive Management Team (EMT) on external and internal risk mitigations. It considers in detail all aspects of treasury audit findings and closely monitors their implementation. management, setting and monitoring treasury strategy and policy and ensuring funds are available to deliver the Remuneration and Nominations Committee Group’s business objectives, both in the short and long-term. This Committee ensures that loan covenants are complied The Remuneration and Nominations Committee is with, liquidity is maintained in line with policy and agrees responsible for reviewing and recommending Board and intra-group lending arrangements. Committee remuneration, together with appointment and succession planning, ensuring there is a plan for the Development Committee orderly succession of new appointments to the Board(s) and committees to maintain an appropriate balance of skills The Development Committee considers matters relating to and experience within the Group’s governance structure. the development and investment strategy of all the Group’s This Committee oversees the Group’s pension strategy and companies, including new property developments and stock arrangements and approves the Group’s Pay Policy and reinvestment. This Committee is responsible for ensuring the Code of Conduct. It also ensures there is an appropriate proper assessment and regular monitoring of development induction and training framework in place for Board and risk. It is also responsible for reviewing the Group’s sales Committee members.

76 / 02. Financial review strategy and recommending it to the Board for approval, to customer health and safety and safeguarding compliance as well as regularly reviewing and monitoring the Group’s through risk and Key Performance Indicator analysis. sales programme. Community Investment and Care Committee Following the dissolution of the Group’s Customer Services Committee in June 2019, its responsibilities were re-allocated The Community Investment and Care Committee has between the Board, and two new committees: delegated authority for overseeing the Group’s care and supporting independence, community investment and Customer Safety Committee sheltered housing activities. It has responsibility for the oversight of associated policies and procedures, service level The Customer Safety Committee has delegated authority agreements with contractors and local authorities and Key for overseeing the Group’s customer health and safety Performance Indicators. It also has responsibility for oversight and compliance requirements and obligations, and asset and support of the Group’s resident engagement structure management in respect of health and safety compliance. which was refreshed in 2019/20, with the creation of a It reviews strategies and policies, and internal audit reports new Customer Scrutiny Panel, supported by a network of where these are related to customer health and safety and customer working groups. safeguarding. It monitors and oversees all matters relating

Annual Report and Group Financial Statements 2019/20 77 Board and committee attendance

Group Committees

Group Board Finance Investment & Care Development Remuneration Remuneration Customer ServicesCustomer Community Customer Safety Audit & Risk & Nomination & Treasury

A Merchant 7/7 4/4

M Corcoran 3/3 1/1

S Buckley 6/7 1/1 2/2

C Rosati 7/7 2/2 R Clark 7/7 4/4 J Francis 2/2 M Watkins 5/7 3/3 J Hawkes 6/7 0/1 3/3 J Collier 6/7 2/3* 5/5 A Gray 4/4 1/1 4/4 D Lewis 4/4 2/2 A Townshend 7/7 D Brewer 4/4 S Chaudry 4/4 A Head 2/4 1/2 M Littlejohns 3/4 S Ensor 4/4 O Boundy A Holgate C Harris J Blair 3/3 2/4 D Mansfield 3/4 J Furmidge 1/1 A Reza 1/1 3/1 M Edwards 1/1 J Andrew 4/5 D Harris - Ugbomah 4/5 M Potter 2/3* 5/5 K Moscrop 5/5 O Eiss 1/1 1/1 JP Argrawal 1/1 1/3 D Porter 1/1 3/3 E Trinder

* observer

78 / 02. Financial review Spruce Members SSL SHCL SHO SDSL Members Homes Ltd who retired Board Board Board Board who joined Board or resigned

A Merchant

M Corcoran 15.7.19

S Buckley

C Rosati 4/4 R Clark 4/4 4/4 4/4 J Francis 9.5.19 M Watkins J Hawkes J Collier A Gray SHGL Board 01.09.19 D Lewis SHGL Board 01.09.19 A Townshend 4/4 3/4 3/4 1/1 D Brewer 4/4 4/4 S Chaudry 4/4 A Head 2/4 2/4 M Littlejohns S Ensor O Boundy 3/4 4/4 1/1 A Holgate 3/3 3/3 C Harris 3/4 J Blair D Mansfield J Furmidge A Reza M Edwards J Andrew D Harris - Ugbomah M Potter K Moscrop O Eiss 4/4 JP Argrawal D Porter 4/4 E Trinder 4/4

Annual Report and Group Financial Statements 2019/20 79 Board performance evaluation

The UK Corporate Governance Code requires large, listed companies (FTSE 350) to have an externally facilitated Board performance evaluation.

The Group’s Board has a strong commitment to corporate governance. In 2020, the Group engaged an independent consultant, Altair, to conduct a formal and rigorous performance evaluation of the Board of Southern Housing Group, its committees and individual directors.

The methodology employed for the evaluation included: observation of a Group Board meeting, a briefing for Board members on the objectives, process and prospective output of the evaluation, completion by the Board members of a comprehensive online questionnaire, an interview with each Board member, a detailed report, and a facilitated discussion for the Board members on the conclusions and recommendations in the report.

In compliance with the UK Corporate Governance Code, the Board has appointed one of its non-executive members, Carol Rosati OBE, as Senior Independent Director (SID). In February 2020 the SID appraised the Chair's performance, supported by the CEO and Company Secretary. The SID has met with the other non-executive Board members and observes committee meetings at least once each year.

The Chair of the Board met with the non-executive directors without officers present after the Board meeting in May 2019, in line with the requirements of the UK Corporate Governance Code.

80 / 02. Financial review The Executive Management Team (EMT)

EMT has executive responsibility for running the Group’s business, implementing the strategic direction set by the Board within the Board’s risk appetite.

The Executive Management Team members during 2019/20

The EMT at the staff conference in September 2019 – from left to right: Alan Townshend, Yvette Carter, Amanda Holgate, Oliver Boundy and Chris Harris.

There are six members of senior management within the Group defined under the UK Corporate Governance Code as the first layer of management below board level (including the company secretary) of whom two are women and four are men. They have 32 direct reports of whom 19 are women and 13 are men.

Annual Report and Group Financial Statements 2019/20 81 RISK

Key risks

Managing risk is fundamental if the Group is to meet During the year, the Group has paid particular attention its corporate challenges. We have embedded a risk to customer health and safety, cyber-security, financial management culture that identifies and mitigates emerging resilience (particularly in light of the increased requirement and current risks whilst exploring future opportunities. and associated costs of building safety compliance), flexible working and business continuity in light of the Risk governance and risk appetite impact of COVID-19.

Risk oversight is the Board’s responsibility, with the Audit Risk and assurance framework and Risk Committee undertaking a more detailed review of risks that might adversely affect our customers and the The Governance team leads the Group’s combined risk business’ viability or reputation. While the Board accepts and assurance framework and provides a systematic risk some risk is inevitable and that perfect risk avoidance is and assurance service. neither possible nor necessarily desirable, we believe that risks related to the following must be managed and actively Risk management mitigated to minimise their likelihood: The Group ensures that risks are owned and managed by • Compliance with health and safety requirements in the directorates in which they are most evident. and around our homes. Our corporate risk framework sets out how we map and • Compliance with other legislation and with relevant score significant risks to the Group. Risks are recorded on a regulatory standards. risk register, together with existing mitigation controls and potential control improvements. • Financial viability and liquidity. The Executive Management Team considers the key risks • Assurance of customer service and to the Group monthly throughout the year and may add to customer satisfaction. the register at any time. Existing risks are reviewed in light of current circumstances and changes in controls. • Recruitment and development of staff with the right values and skills. The Audit and Risk Committee and the Board review the top risk register every quarterly meeting cycle. • Investment in development and growth in the right areas and tenures protecting the integrity and reputation of the Group.

The impact these areas of risk could have on the Group determines our risk appetite and we expect high-level controls to be set out clearly, implemented and reviewed. More operationally, staff and managers weigh the mitigation costs against the likely risk impact informed by the risk appetite set by the Board in consultation with the Audit and Risk Committee and the executive. Additional controls may be formal or informal, depending on need and appropriateness.

82 / 02. Financial review Key risks

Risk Key mitigations and controls

Failure to assure that all Group stock • Rigorous monitoring of fire safety programmes; gas certifications; electrical works testing and repair (residential and commercial) programme; water hygiene testing programmes; asbestos surveys. is safe and compliant with legislative • Customer safety team in place with Building Safety Managers appointed for all high rise blocks. requirements • Relevant servicing and maintenance procedures in place. • CDM inspection arrangements involving specialist internally appointed staff. • Estate inspections include health and safety issues. • Lift contractor and backup contractor in place for lift inspections. • New Health and Safety network established. • Quarterly reporting to Customer Safety Committee. • Daily monitoring with contractors to work through any COVID-19 related issues. • Annual internal audit programme for compliance in place. • COVID-19 KPIs being produced to include suite of compliance data for review by EMT weekly and Board monthly. • Ability to monitor compliance with the Decent Homes Standard, which allows the detection of components surpassing the Decent Homes Standard lifecycle.

Inability to comprehensively prevent • Endpoint security and Multi Factor Authentication (MFA). a significant cyber attack and or • Logging, alerting and monitoring. attempted fraud/ransom. • Cyber security awareness training (including Sophos phishing campaign). • Physical security (CCTV, door access control, secure printing). Security incidents as a result • Penetration testing (vulnerability scanning). of user error, due to a lack of • IT Security Board. overall awareness with regards to • IT supplier due diligence procedure. Information Security best practice

Failure to deliver core • Working parties in place with frontline staff and IT project team. system improvements • Monitoring through Digital Strategy Steering Group and Telephony (Omni) Steering Group. (telephony/omni-channel system) • Regular compliance monitoring through web-hosted calls. • Regular executive meetings between the Group and the supplier.

Significant property • Stress testing of Long Term Financial Plan shows the plan could withstand market downturn. market correction • Weekly sales reporting updated to advise EMT of sales progression and lenders' appetite. • Conversion of tenures. • Group Development Committee reporting quarterly. • Revised funding structure and strong liquidity policy can support the business plan and provide headroom for a market downturn. • Ability to slow development programme. • Lobbying for additional grant funding streams to mitigate impact of revenue loss and convert tenures. • COVID-19 specific measures.

Annual Report and Group Financial Statements 2019/20 83 The Group fails to achieve • Effective policies and procedures. compliance with data protection • Mandatory training reinforced by internal communications. legislation (incorporating the • Information security measures. General Data Protection Regulation • Article 30 and processing activities register. (GDPR)) • Regular review of processing activities.

The potential for the Group’s • Documented business continuity plans. Business Continuity Management • External validation and support for arrangements. Plan to be inadequate and/or not • Incident scenario exercises completed at London, Horsham and IOW offices with the local incident successfully tested management teams. • Core services replicated to the cloud. • Flexible and agile working.

Failure to remove combustible • Fire risk assessments logged and actioned. materials from stock containing • Review of high-rise buildings. these. Buildings do not meet new • Review of all timber-framed or timber-clad buildings. fire safety regulations and MHCLG • Customer safety team in place with Building Safety Managers appointed for all Group high rise blocks. advice notes • Waking watch where required. • Full evacuation policies in place and communication to customers. • Group web site contains information about our risk-based approach that deals with the fire safety checks from the advice notes.

The risk that the Group is unable • Internal recruitment team now in place. to attract or retain the calibre of • The Group is working with contractors who have direct labour and closely monitoring labour on site and employees required at present and progress against programme. in the future • Clear induction and development plans to ensure that all new employees are equipped with the skills, equipment and training that they require. • Review and benchmarking of salaries carried out in 2019. • Review of talent management offer and wider leadership development under way. • Business continuity planning approaches reviewed to ensure that there are no single person areas of dependency in teams in case key personnel leave or are absent for lengthy periods of time (e.g. pandemic). • Revised approach to pay and supporting pay policy approved May 2020.

Failure to manage adverse • Agreed Corporate Communications Strategy 2017-2020 is in place. media/social media attention • Communications team monitors communications and engages internal and external audiences. compromising our reputation • Proactive reputation management through stakeholder management programme and systems and processes and brand in place to approve key messages going out through corporate communications channels with specific audiences targeted. • Access to external advisors provides ad hoc communications resources for emergency communications needs. • Communications team provides an out of hours media and social media monitoring service. • Corporate communications channels managed proactively via an enhanced central external communications team.

84 / 02. Financial review Service charges being applied • Staff expertise and training. inaccurately and / or not being • Specialist system introduced for managing service charges. legislatively compliant • Service charge project has completed process reviews. • Service charge project under new leadership with direct oversight from Executive Director Resources.

Inability to protect the financial • Budgeting process provides high visibility at EMT and senior management forum. viability of the Group (variance • Budget approved by Board. to budget) • Approved budget in system and communicated to budget owners. • Monthly reporting variances to budget (including reasons) to EMT. • Embed "zero growth" culture (i.e. overall run rate does not increase). • Continually refining management accounts reporting using existing systems to provide valuable insight as to the performance of the organisation.

Inability to protect the • A ‘live’ version of the Long Term Financial Plan is maintained that incorporates the Group’s approved financial viability of the Group budget and the Group's latest development cashflows. (Long Term Financial Plan) • Financial viability expressed through the Group’s financial health indicators including financial covenants. • Financial health indicators presented under Board approved stress test and with no further unidentified development. • Financial health indicators reported fortnightly to the EMT and quarterly to Finance Committee and Board.

Insufficient liquidity to • Fortnightly monitoring by EMT. meet obligations • Prudent liquidity policy that excludes any capital receipts (including first tranche sales and open market sales). • Short term (13 weeks) cashflows prepared on a weekly basis. • Quarterly NROSH+ returns reviewed and findings shared with Finance Committee and Board to provide assurance on accuracy of the Group’s liquidity forecasting. • Regular contact maintained with relationship lenders and non-deal roadshows with investors between market issuances. • Ongoing engagement with sector treasury advisors to introduce new and evolving funding opportunities to the Group.

Failure to assure good • Tracking the organisation’s financial and operational health by agreeing a series of directly relevant Key governance during the COVID-19 Performance Indicators and financial metrics. emergency through: • Monthly Board meetings to review KPIs and monitor corporate risks and the effectiveness of mitigations. - lack of communication • All decisions will continue to be taken in accordance with our Rules, financial regulations and - lack of management information Code of Governance. - decision making processes which • Regular 'Gold Command' calls. do not follow usual procedures • Directorate cascade calls. • Governance principles for the COVID-19 pandemic have been agreed by the Board. • Contingency arrangements in place for Board members and Executive team.

Annual Report and Group Financial Statements 2019/20 85 Risk scenarios and stress testing

The Group uses enhanced risk scenarios to stress test the business to determine where financial, operational and reputational weaknesses might occur in extreme adverse operating conditions. The outcome from this testing enhances our internal processes in mitigating these risks.

Internal audit

Each year, the Audit and Risk Committee agrees a programme of internal audits for the forthcoming financial year, which is designed to ensure discrete areas of the business and areas of significant risk are audited regularly. Mazars, our internal auditors, carry out the Group’s audits in conjunction with our in-house team.

Internal controls assurance

In addition to our risk management and audit work, the Group keeps a register of key control areas and details of the controls in place, which is reviewed and updated annually. Each year, the Board reviews the internal controls assurance report and framework.

The Group adopts a ‘three lines of defence’ approach to risk management and internal controls form an integral part of its approach to risk management and assurance.

Key elements of the system of risk management and internal control throughout the period included:

• Board approved terms of reference and delegated authorities for the Group’s committees

• Board approved Risk Management policy and reviewed top risk register

• Clearly defined management responsibilities for the identification, evaluation and control of significant risks

• Robust strategic and business planning processes, with detailed financial budgets and forecasts

• Formal recruitment, retention, training and development policies for all staff

• Formal Board and committee evaluation and appraisal procedures

• Annual review of compliance with the UK Corporate Code of Governance

• Established authorisation and appraisal procedures for significant new initiatives and commitments through our Group Portfolio Management Office (GPMO)

• Committee approved internal and external audit planning and reporting at Committee meetings including the implementation and completion of audit recommendations

• Approval by the appropriate committee or Board of key policies

86 / 02. Financial review • Regular reporting to the Audit and Risk Committee and Board of risk information

• Health and safety key issues reporting to the Customer Safety Committee and to the Audit and Risk Committee

• Detailed Group approach to treasury management

• Regular reporting to the appropriate committee on key business issues, objectives, targets and outcomes

• Policies and arrangements to reduce the risk of fraud, bribery and money laundering

• Periodic review and assessment of compliance with regulatory standards

The Board has delegated to the Audit and Risk Committee the regular review of the effectiveness of the Group system of internal control, while maintaining ultimate responsibility for its control.

Asset and liability register

The Regulator of Social Housing requires registered providers to maintain a thorough, accurate and up to date record of their assets and liabilities. The Executive Management Team and Audit and Risk Committee regularly review the Group’s Asset and Liability Register and it is reviewed by the Board on (at least) an annual basis.

Annual Report and Group Financial Statements 2019/20 87 Going concern statement

The Group’s business activities, its current financial The Group is able to withstand these stresses whilst position and factors that are likely to affect its future remaining fully compliant with its loan covenants and development are set out within the strategic review. without employing any mitigating actions. The Board’s assessment of going concern is focused on the Group’s liquidity and its compliance with loan In line with its treasury management policy, the covenants. The review period is 18 months from the Group continues to maintain sufficient resources to signing of the financial statements. cover at least the next 18 months’ committed cash flows, excluding sales receipts. This position is calculated The Group maintains its rigorous approach to financial net of any restricted cash. The Group’s detailed liquidity planning, including the preparation of detailed budgets position is set out on pages 62 to 64 and at the year and forecasts for the next financial year. The Group’s end undrawn facilities and cash investments totalled budget is approved by the Board and forms the first £485.6m with forecast headroom against the Group’s year of the 30 year business plan (the Long Term liquidity policy of £105.9m. £58.2m of drawn debt from a Financial Plan (LTFP)) which sets out the long term total of £977.9m is repayable over the period under review. objectives of the Group. The Group’s principal loan covenants are linked to levels of interest cover and gearing and the Group is able The Board has considered the impact of COVID-19 on its to service its loan facilities while continuing to comply short-term forecasts, applying stress tests to the early years with lender covenants. of the long term financial plan that reflect the potential for heightened financial risk stemming from the effects No material uncertainties related to events or conditions of the pandemic. The Board considers these tests to that may cause significant doubt about the ability of represent a severe yet plausible view of the risks that may the Group to continue as a going concern have been impact the Group. The tests consider the impact of adverse identified. On this basis, the Board has a reasonable movements in macroeconomic indicators, as well as sharp expectation that the Group has adequate resources to reductions in income and significant above inflationary continue in operational existence for the foreseeable increases in costs. Tenant rent arrears are presumed to future, being a period of at least twelve months after double in the period under review with a conservative the date on which the report and financial statements assumption on eventual recovery also modelled. are signed. Accordingly, the Directors continue to adopt the going concern basis in preparing the Group’s consolidated financial statements. Viability assessment

The Board has assessed the viability of the Group over The plan includes a significant provision for ongoing a five year period, being the first five years of the building safety spend, with the majority of the spend Group’s Long Term Financial Plan (LTFP). This is consistent forecast during the five-year viability assessment period with prior years and represents the period over which and no provision for recovery of this expenditure. cash flows associated with the Group’s development and investment activities can reasonably be forecast. The plan represents the maximum financial risk that the The viability assessment is supported by the Group’s Board will accept in pursuing its development and growth liquidity forecasts, its underlying long-term financial objectives and it is subjected to severe, but plausible plan and consideration of the Group’s principal risks stress tests designed to explore how the plan reacts to a and uncertainties. range of risks that may arise from the Group’s constantly evolving operating environment. Such risks are considered The long-term financial plan sets out how the Group holistically and include the changing economic and political manages its resources to ensure long-term financial conditions that may result from the UK’s exit from the sustainability and the safeguarding of social housing assets. European Union.

88 / 02. Financial review The Group adopts a multivariate approach to stress investments totalled £485.6m with forecast headroom testing. Twenty individual sensitivities have been drawn against the Group’s liquidity policy of £105.9m. together to test the Group’s vulnerability to a wide range of stresses, which are presumed to affect the business £481.9m of the £646.0m loan facilities expiring within five simultaneously. The stress tests have been expanded to years relates to revolving credit facilities which are expected include specific consideration of the business’s susceptibility to be rolled forward as they fall due. to risks arising from COVID-19. Long term liquidity forecasts are monitored on a fortnightly Key assumptions include: basis by the Executive Management Team and reported regularly to the Finance Committee and the Board, along • Significant, above inflationary increases in capital with detailed short term cash flow forecasts which include and revenue expenditure while capping increases in an analysis of variances between projected and actual index-linked income. cash flows. During the COVID-19 emergency, short-term cash flow forecasts together with long-term liquidity • Increases to the variable cost of debt in excess of 100 projections are reported to the Board on a monthly basis basis points above current five year market forecasts. to ensure that the Group has the funds available to meet any operational needs that arise from the crisis response, • Delays in sales transactions, reflecting the potential as well as supporting the Group’s strategic objectives and impact of COVID-19 on the housing market. safeguarding its long term viability. All forecasts exclude restricted cash. • Reductions in sales values that are deeper than current analyst expectations, at 10% in 2020/21 with a further In April 2020, the Regulator of Social Housing published drop of 5% in 2021/22. its viability rating for the Group following its In-Depth Assessment (IDA). The Group was re-graded from V1 to V2, • Extension to development periods to allow for changes retaining a compliant regulatory rating. in site practices including the implementation of social distancing measures. Based on the results of the Group’s LTFP stress testing and the Group’s forecast liquidity position, together with the • Reductions in rental income across commercial tenures. assurance of its recent regulatory assessment, the Board has a reasonable expectation that the Group will be able • Increases in void costs to reflect delays to lettings to continue in operation and meet its liabilities as they fall caused by COVID-19. due over the period under review.

• A doubling of arrears from current levels which The Board is satisfied that the Group has the financial are in turn assumed to crystallise into higher levels of capacity to withstand a range of severe yet plausible bad debt. adverse scenarios whilst maintaining continued compliance with its financial covenants, the requirements of the Under these stresses, the Group remains compliant with its Regulator and the risk appetite of the Board. financial covenants throughout the period under review, and for the duration of its long term financial plan, with no changes assumed to the existing development plan and no mitigating actions employed. Allowing for planned refinancing, including the replacement of existing facilities as they mature, the Group also maintains sufficient liquidity to meets its obligations as they fall due.

The Group’s current liquidity position is detailed on pages 63 and 64, and at the year-end undrawn facilities and cash

Annual Report and Group Financial Statements 2019/20 89 03. Audit and Risk Committee report

03 PURPOSE OF THE REPORT

The Audit and Risk Committee has the delegated • Recommended the reappointment of authority from the Boards of Southern Housing PricewaterhouseCoopers LLP following Group Limited and its subsidiaries to oversee the consideration of the independence and effectiveness Group’s audit function, monitor the integrity of the of the external audit process and noting the period of financial statements, and review the Group’s internal uninterrupted engagement of nine years. A re-tender is control and risk management systems. The Group has anticipated for the 2021/22 year but not yet confirmed. adopted the UK Corporate Governance Code. • Reviewed the management letter presented by the Principal areas of responsibility for the Audit auditors, as well as management’s responses. and Risk Committee • Reviewed compliance statements. Issues addressed in the year: Monitoring the Group’s financial • Ensuring the systems of internal controls employed by performance the Group are satisfactory and work effectively. The Audit and Risk Committee had responsibility for • Risk strategy, top risks and management reviewing the Group’s Long-Term Financial Plan and mitigations reviewed quarterly, review of Board detailed stress testing and financial performance determined risk appetite and embedding of risk (with explanations of key variances) until responsibility management throughout the Group. passed to the Finance Committee in October 2019.

• Areas and instances of potential fraud and The Audit and Risk Committee reviewed the production, speaking up were reviewed, together with control content and format of the Annual Report and Group and process improvements. Financial Statements and recommended its acceptance to the Group Board. As part of this work, the Committee • Reviewed a report on internal control assurance. reviewed key audit and accounting matters and management judgements, with particular regard to • Reviewed compliance with the UK Corporate property valuations, impairment assessments and detailed Governance Code. assurance of the going concern status and ongoing viability of the Group. • Monitoring and reviewing the work of the internal audit function (including that outsourced Regulatory compliance to Mazars LLP). The Group is regulated by the Regulator of Social • Reviewed the annual cycle of internal audit Housing which uses in-depth assessments (IDAs) as its key reviews, aligning to the corporate risk map and regulatory tool. The Audit and Risk Committee reviewed timing of previous reviews. regulatory compliance during the year and supported the regulatory IDA which was carried out in December 2019. • Reviewed progress against previous internal audit recommendations, assuring their implementation. Other

• Selecting the external auditors, approving The Audit and Risk Committee’s terms of reference their fees, monitoring their performance and were reviewed in line with the annual review cycle. approving the provision of non-audit services. The Committee also reviewed the Asset and Liability Register(s).

Annual Report and Group Financial Statements 2019/20 91 External audit

The appointment of the Group’s external auditors is internal auditors and the Group’s in-house internal audit re-tendered in line with best practice. In accordance with function. Evidence of the implementation of internal audit its terms of reference, the Committee annually reviews recommendations is reviewed by our internal audit and the Group’s external audit requirements and considers the assurance function, which is independent of the audited external auditors’ independence and performance before business area(s) and its findings are presented to the recommending to the Board their re-appointment. Committee for review. During the financial year, the Committee has: Accounting policies • Considered information presented by management on key matters on accounting judgements and policies and The Committee, together with the external auditors, agreed their appropriateness. considered the requirements of the FRS 102 framework and Statement of Recommended Practice for registered housing • Discussed with PwC the firm's reports and noted the providers adopted by management to ensure the financial key matters and significant judgements highlighted statements present a balanced and appropriate view. by PwC in respect of each set of financial statements. These reports were considered and approved. Internal audit

During the 2019/20 financial year Mazars conducted Janet Collier 12 audits, in partnership with the Group’s new in-house Chair of the Audit and Risk Committee internal audit function. The in-house team began to operate in April 2019, and has completed an additional five audits. No areas audited were graded as ‘no assurance’, which is consistent with the previous year.

In accordance with the audit plan for 2020/21, the Audit and Risk Committee is scheduled to receive nine new audit and seven follow-up reports during the year.

The Committee approves the entire internal audit programme each year, ensuring that this is aligned to the corporate risks presenting at the time. This is subject to monitoring and review in response to any emerging risks and analysis of trends arising from completed audits to support continuing improvement of the risk profile and internal controls.

The Committee receives (at least) quarterly updates on the progress of the entire audit programme, and the implementation of the recommendations made by the

92 / 03. Audit committee report Annual Report and Group Financial Statements 2019/20 93 04. Report of the Board

94 / 03. Audit committee report 04 STATEMENT OF THE BOARD’S RESPONSIBILITIES

The Board is responsible for preparing the annual review The Board is responsible for the maintenance and integrity and the financial statements in accordance with applicable of the Group’s website. Legislation in the United Kingdom law and regulations. governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Co-operative and Community Benefit Societies Act 2014 and registered social housing legislation require the Southern Housing Group Limited confirms that the annual Board to prepare financial statements for each financial report has been prepared in accordance with the principles year, which give a true and fair view of the state of affairs set out in paragraphs 4.6 and 4.7 of the 2018 Statement of of the Private Registered Provider (PRP) and of the surplus Recommended Practice for registered social landlords. or deficit for that period. The Regulator of Social Housing (the Regulator) carried out In preparing these financial statements, the Board is its routine in-depth assessment (IDA) of the Group during required to: the year and published its regulatory judgement in April 2020. The Regulator assessed the Group’s governance • Select suitable accounting policies and then apply rating as G2 and its rating for financial viability as V2. them consistently. These ratings were previously G1 and V1 respectively. A G2 rating meets the Regulator’s governance • Make judgments and estimates that are reasonable requirements but recognises that we need to improve and prudent. some aspects of our governance arrangements to support continued compliance. A V2 rating meets the • State whether applicable accounting standards have Regulator’s viability requirements, providing assurance that been followed, subject to any material departures we have the financial capacity to deal with a reasonable disclosed and explained in the financial statements. range of adverse scenarios, but need to manage material risks in order to ensure continued compliance. • Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the PRP The Board has approved an improvement plan to return will continue in business. to a G1 rating for governance at the earliest available opportunity and good progress has been made against The Board is responsible for keeping proper accounting this plan. records that are sufficient to show and explain the PRP’s transactions and disclose with reasonable accuracy at The Board confirms that an assessment of the Group’s any time its financial position. This is designed to enable compliance with the Governance and Financial Viability the Board to ensure that the financial statements comply Standard has been completed and certifies that the Group with the Co-operative and Community Benefit Societies is compliant with this Standard. Act 2014 and Regulations thereunder, the Housing and Regeneration Act 2008 and the Accounting Direction for The Board members who served during the year are listed Private Registered Providers of Social Housing in England and attendance at meetings is recorded on page 78 to 79. 2019, issued by the Regulator of Social Housing.

The Board is also responsible for safeguarding the assets of the PRP and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Annual Report and Group Financial Statements 2019/20 95 Statement of internal control

Southern Housing Group Limited has adopted the UK Governance Code (the Code) as its chosen code on a “comply or explain basis”.

The rules of Southern Housing Group (the Rules) detail how the company is governed.

Provisions of the Code not applicable to the Group are set out below:

Code paragraph reference Code requirement Explanation 5 s172 Companies Act 2006 The Annual Report and Group Financial Statements does not include a section 172 statement since it is not required to comply with the Companies Act 2006. However, the annual report sets out how the interests of stakeholders are considered by the Group and taken into account when making decisions. 24 & 32 Two NEDs on Committees The Audit and Risk, and Remuneration and Nominations Committees are both chaired by Non-Executive Directors but do not include a second NED within their membership. The remaining committee members are non-executive members appointed for their specific skills and experience in relation to the responsibilties and business of those committees. 39 Notice and contractual periods offered to directors Not applicable 40 Incentive plans/schemes Not applicable 3, 4 , 40 & 41 Shareholder engagement Not applicable – all shareholders are board members as per the rules of Southern Housing Group Limited.

Board members serve as independent non-executive directors, except for the Group Chief Executive. All the Group’s non-executive directors meet the independence criteria set out in provision B1.1 of the Code. Following the adoption of the Code they may serve a maximum of two continuous terms of three years. Internal controls

The Board is responsible for the Group’s system of internal controls and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. It can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The Group operates ongoing processes for identifying, evaluating and managing the significant risks that it faces. They have been in place for the year to 31 March 2020 and up to the date of the approval of the Annual Report and the Group Financial Statements. The Board and Audit and Risk Committee review processes at least quarterly.

96 / 04. Report of the Board Main policies in place to provide effective internal control

Risk assessment

The Group’s objectives are established within the context of the Group’s Corporate Plan. There is a process of cascading these objectives throughout the Group to each operational team and to individual staff members’ targets. Assessment of resultant risk is mapped for each area of business activity. The Group’s risk management strategy includes requirements for formal risk assessments to be presented to the Board for discussion and approval. The Audit and Risk Committee fulfils this function.

Control environment

Authority, responsibility and accountability are set out in the following ways:

• Standing orders and delegated authorities

• Regular reporting to the appropriate committee on key business objectives, targets and outcomes

• Clearly defined management responsibilities for the identification, evaluation and control of significant risks

• Policies and procedures in all key areas

• Codes of conduct for Board and Committee members, and staff

• Staff job descriptions and supervisory procedures

Information

There is a timely system for reporting progress in the Group, at many levels. The Boards and their sub-committees receive regular and extensive reports on all key areas of performance.

Annual Report and Group Financial Statements 2019/20 97 Monitoring

The Group has a comprehensive internal audit programme. This is undertaken by Mazars LLP, chartered accountants in conjunction with the Group's in-house audit team. The internal audit programme is designed to review key areas of risk for the Group. The internal auditors report to the Audit and Risk Committee. Each audit assignment is sponsored by the relevant Executive Director who approves the scope of the work and takes responsibility for ensuring recommendations are acted upon. Group-wide progress on completing work on recommendations is monitored by the Internal Audit and Assurance Team. Mazars LLP meet quarterly with the Director of Governance. Both Mazars LLP and the Group's in-house audit team report to each meeting of the Audit and Risk Committee on their recent and prospective activity. They also meet regularly and independently with the Chair of the Audit and Risk Committee.

The risk management process incorporates reviews of high-level risks across the Group, including the identification of newly emerging risks. The external audit, internal audit and risk management activities incorporate follow-up reporting on actions identified for improving the Group’s control environment.

Review of effectiveness

The Board has reviewed the effectiveness of the Group’s internal controls through the work of the Audit and Risk Committee, which regularly reports to the Board. In addition, the Chief Executive has submitted to the Board a detailed report on the operation of internal controls during the period under review and up to the date of approval of this report.

During the year, the Board identified an IT control matter which exposed the Group to the possibility of financial loss. The Audit and Risk Committee were consulted on a plan to remediate the identified control weakness and this remediation programme is continuing with mitigating controls in place. No financial loss was suffered as a result of the control finding.

The Board confirms that no further weaknesses were found in the internal controls for the year ended 31 March 2020 that might otherwise have resulted in material losses, contingencies or uncertainties which require disclosure in the financial statements.

98 / 04. Report of the Board Independent auditors

A resolution is to be proposed at the annual general meeting for the position of Group's independent auditor to be reappointed for the forthcoming year.

Statement on the annual report

Each individual who is a director at the date of approval of this report confirms that they consider the annual report and accounts as a whole to be fair, balanced and understandable, and that they provide the information necessary for stakeholders to assess the Group’s performance, business model and strategy.

Statement as to disclosure to auditors

So far as the directors are aware, there is no relevant audit information of which the Group’s auditors are unaware.

They have taken all the steps they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Group’s auditors are aware of that information.

Arthur Merchant Chair of the Group Board

For and on behalf of the Board

Annual Report and Group Financial Statements 2019/20 99 05. Independent auditors’ report to the members of Southern Housing Group Limited

05 Report on the audit of the financial statements

Opinion

In our opinion, Southern Housing Group Limited’s group financial statements and parent association financial statements (the “financial statements”):

• give a true and fair view of the state of the group’s and of the parent association’s affairs as at 31 March 2020 and of the group’s and the parent association’s income and expenditure and the group’s cash flows for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and

• have been prepared in accordance with the requirements of the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for private registered providers of social housing 2019.

We have audited the financial statements, included within the Annual Report and Group Financial Statements 2019/20 (the “Annual Report”), which comprise: the Consolidated Statement of Financial Position as at 31 March 2020; the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Cash Flows, and the Consolidated Statement of Changes in Reserves for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Our opinion is consistent with our reporting to the Audit and Risk Committee.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent association.

We have provided no non-audit services to the group or the parent association in the period from 1 April 2019 to 31 March 2020.

Annual Report and Group Financial Statements 2019/20 101 Our audit approach Overview

• Overall group materiality: £2.4 million (2019: £2.3 million), based on 1% of turnover.

• Overall parent association materiality: £1.8 million (2019: £1.8 million), based on 1% of turnover

• The group operates in England. It comprises six trading entities and two joint venture entities.

• We conducted a full scope audit of the six trading entities.

• We engaged a component team to conduct a full scope audit of one joint venture entity, while the other joint venture entity was not significant from the perspective of the group.

• These audit procedures covered 100% of group turnover and 100% of group total assets.

• Valuation of investment properties (group and parent association)

• Consideration of COVID-19 (group and parent association)

The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.

Capability of the audit in detecting irregularities, including fraud

Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to the Regulator of Social Housing’s regulatory framework, and we considered the extent to which non-compliance might have a material effect on the financial statements. A summary of the Regulator of Social Housing's most recent In-Depth Assessment is set out on page 95, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Group Accounts) Regulations 1969, the Housing and Regeneration Act 2008 and the Accounting Direction for private registered providers of social housing 2019. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to inappropriate journal entries to increase the reported operating surplus, and management bias in accounting estimates. The group engagement team shared this risk assessment

102 / 05. Independent auditors’ report with the component auditor so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditor included:

• Discussions with management and internal audit, including consideration of known or suspected instances of non- compliance with laws and regulation (in particular, considering the results of the Regulator of Social Housing’s most recent In-Depth Assessment) and fraud;

• Evaluation of management’s controls designed to prevent and detect irregularities;

• Challenging judgements and assumptions made by management in their key accounting judgements and estimation uncertainty, in particular in relation to the valuation of investment properties (see the related key audit matter below); and

• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations focusing on journals impacting: rental income, capitalisation of costs, cash and property sales.

There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Annual Report and Group Financial Statements 2019/20 103 How our audit addressed Key audit matter the key audit matter

Valuation of We engaged our internal valuation experts (RICS qualified) to assist us in our audit of this matter. investment properties We assessed the external valuers’ qualifications and Group and parent association expertise and read their terms of engagement with the group. Except as further explained below relating to the See notes 1 and 11 to the financial statements for the ‘material valuation uncertainty’ statement, we did not group’s and parent association’s disclosures of the related identify any unreasonable special assumptions or unusual accounting policies, judgements and estimates relating to caveats or disregards. the valuation of investment properties. We considered the ‘material valuation uncertainty’ The group has both market rent residential properties and statement in JLL’s valuation reports following the commercial properties which it holds at fair value. The fair COVID-19 pandemic. We noted that this statement is a value of investment properties held by the group at the disclosure and not a disclaimer, and that the purpose of year end was £143.3 million (2019: £106.9 million). the statement was to ensure that the group understands that it has been prepared under extraordinary This was identified as a key audit matter because the circumstances. Additional disclosures have been included valuation of investment properties is inherently subjective in note 1 and note 11, including a sensitivity analysis and involves estimates and judgements for example in around the key inputs to the valuations. relation to the properties nature, location and condition. We verified on a sample basis, the accuracy of the There are wider challenges currently facing the UK underlying lease and property data used by the external residential and commercial property markets following valuers in their valuation by tracing the data back to the the COVID-19 pandemic. The group engaged an external relevant signed leases and evidence of rent amendments. valuer, Jones Lang LaSalle (“JLL”), to perform the independent valuations at the balance sheet date. Due to We read the external valuation reports for both COVID-19 and following guidance from the Royal Institute the residential and commercial portfolios. With the of Chartered Surveyors (“RICS”), JLL included a ‘material assistance of our internal valuation experts, we confirmed valuation uncertainty’ statement highlighting the impact that the valuation approach for each portfolio was in COVID-19 is having on real estate markets. accordance with RICS standards and suitable for use in determining the final fair values for the purpose of the financial statements.

With the assistance of our internal valuation experts, we challenged the valuation process, the key assumptions, and the rationale behind the more significant valuation movements during the year.

We are satisfied that the valuations of the investment properties are within an acceptable range and have been performed on an appropriate basis for inclusion in the financial statements.

104 / 05. Independent auditors’ report How our audit addressed Key audit matter the key audit matter

Consideration of COVID-19 Our procedures in respect of valuation of investment properties are set out in the ‘valuation of investment Group and parent association properties’ key audit matter. The COVID-19 pandemic has had a significant impact on the UK economy with consequences to the We evaluated management’s assessment of other judgements and estimates made by the group. accounting estimates within the financial statements The extent of the negative impact of the pandemic on which could be impacted by the challenging economic future performance is unclear and measurement of the environment resulting from COVID-19. We satisfied impacts as they relate to the financial statements involves ourselves that management’s measurement of such a degree of estimation uncertainty. estimates was acceptable. We also considered the appropriateness of management’s disclosures in the In response, management has assessed the completeness Annual Report of the impact of the current environment of accounting considerations across the group and and the increased uncertainty on its accounting estimates determined that the primary risks that arose from the and found these to be adequate. COVID-19 pandemic related to the valuation of investment properties. The related key judgements are discussed in With respect to management’s going concern statement the ‘valuation of investment properties’ key audit matter. and viability assessment, we evaluated management’s base case and downside scenarios, challenging its key Management has considered its short-term and long-term assumptions together with assessing the group’s available forecasts as part of the group’s going concern statement facilities. Our conclusion in respect of going concern, and viability assessment. This includes applying stress and our consideration of the directors’ assessment of tests to reflect the potential for heightened financial risk the prospects of the group and of the principal risks that stemming from the effects of the pandemic by modelling would threaten the solvency or liquidity of the group, possible downside scenarios to its base case financial are set out separately in this report. plan. Having considered these scenarios, together with an assessment of planned and possible mitigating actions, We considered whether changes to working practices management has concluded that the group remains a brought about by COVID-19 had had an adverse impact going concern, and that there is no material uncertainty in on the effectiveness of management’s business process respect of this conclusion. and IT controls. We did not identify any evidence of significant deterioration in the control environment. Management has included its going concern statement on page 88 and described its viability assessment on pages 88 and 89 of the Annual Report.

Annual Report and Group Financial Statements 2019/20 105 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the parent association, the accounting processes and controls, and the industry in which they operate.

The group operates in England. It comprises six trading entities and two joint venture entities.

We scoped in all six trading entities to audit for Group reporting purposes because they all required individual statutory audits.

For one joint venture entity, Triathlon Homes LLP, a non-PwC component team performed a full scope audit under our instructions. The group audit team approved the component materiality having regard to the size and risk profile of the component. The group audit team specified the nature of the report to be received from the component team.

For the other joint venture entity, Affinity (Reading) Holdings Limited, we performed analytical procedures over the out of scope component to re-examine our assessment that there were no significant risks of material misstatement within it.

The full scope audits by the group and component teams covered 100% of group turnover and 100% of group total assets.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Parent association Group financial statements financial statements

Overall materiality £2.4 million (2019: £2.3 million). £1.8 million (2019: £1.8 million).

How we determined it 1% of turnover. 1% of turnover.

Rationale for This is a generally accepted measure This is a generally accepted measure benchmark applied applied when auditing organisations applied when auditing organisations with social objectives, to calculate with social objectives, to calculate overall materiality. overall materiality.

106 / 05. Independent auditors’ report For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was £59,000 and £1,814,000. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality

We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £118,000 (Group audit) (2019: £114,800) and £90,700 (Parent association audit) (2019: £92,400) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.

Going concern

In accordance with ISAs (UK) we report as follows:

Reporting obligation Outcome

We are required to report if we have anything material We have nothing material to add or to draw to add or draw attention to in respect of the directors’ attention to. statement in the financial statements about whether the directors considered it appropriate to adopt the going However, because not all future events or conditions can concern basis of accounting in preparing the financial be predicted, this statement is not a guarantee as to the statements and the directors’ identification of any material group’s and parent association’s ability to continue as a uncertainties to the group’s and the parent association’s going concern. ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions and matters as described below.

Annual Report and Group Financial Statements 2019/20 107 The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group

As a result of the directors’ reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are required to report to you if we have anything material to add or draw attention to regarding:

• The directors’ confirmation on page 82 to 87 of the Annual Report that they have carried out a robust assessment of the principal risks facing the group, including those that would threaten its business model, future performance, solvency or liquidity.

• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.

• The directors’ explanation on page 88 and 89 of the Annual Report as to how they have assessed the prospects of the group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

We have nothing to report in respect of this responsibility.

Other Code Provisions

As a result of the directors’ reporting on how they have applied the Code, we are required to report to you if, in our opinion:

• The statement given by the directors, on page 99, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the group’s and parent association’s position and performance, business model and strategy is materially inconsistent with our knowledge of the group and parent association obtained in the course of performing our audit.

• The section of the Annual Report on page 90 to 92 describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee.

We have nothing to report in respect of this responsibility.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Statement of the Board’s responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent association’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent association or to cease operations, or have no realistic alternative but to do so.

108 / 05. Independent auditors’ report Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has been prepared for and only for the parent society’s members as a body in accordance with Section 87 (2) and Section 98 (7) of the Co-operative and Community Benefit Societies Act 2014 and Section 128 of the Housing and Regeneration Act 2008 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting

Co-operative and Community Benefit Societies Act exception reporting

Under the Co-operative and Community Benefit Societies Act 2014 we are required to report to you if, in our opinion:

• a satisfactory system of control over transactions has not been maintained; or • we have not received all the information and explanations we require for our audit; or • proper accounting records have not been kept by the parent association; or • the parent association financial statements are not in agreement with the accounting records.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Audit and Risk Committee, we were appointed by the members on 9 July 2012 to audit the financial statements for the year ended 31 March 2013 and subsequent financial periods. The period of total uninterrupted engagement is 8 years, covering the years ended 31 March 2013 to 31 March 2020.

The engagement partner on the audit resulting in this independent auditors’ report is Sotiris Kroustis.

PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London Date: 31 July 2020

Annual Report and Group Financial Statements 2019/20 109 06. Audited financial statements of the Group For the year ended 31 March 2020

Southern Housing Group Limited is incorporated under the Co-operative and Community Benefit Societies Act 2014 (Registered Number IP31055R) and registered by the Regulator for Social Housing (Registered Number L4628).

110 / 06. Audited financial statements of the Group 06 Consolidated Statement of Comprehensive Income For the year ended 31 March 2020

Group Group Association Association 2020 2019 2020 2019 Note £000s £000s £000s £000s

Turnover 2 236,846 230,466 181,415 184,963

Cost of sales 2 (47,315) (39,289) (5,003) (13,802)

Gross profit 189,531 191,177 176,412 171,161

Operating costs 2 (145,716) (129,275) (147,122) (129,232)

(Loss)/gain on revaluation of investment properties 2, 11 (5,865) 568 (5,650) (3,298)

Gain on disposal of fixed assets 5 24,049 9,694 23,779 6,590

Operating surplus 61,999 72,164 47,419 45,221

Interest receivable and similar income 6 1,190 1,065 4,889 2,300

Interest payable and similar charges 7 (39,595) (33,908) (43,620) (35,124)

Share of operating surplus in joint ventures 24 35 - -

Gift aid received - - 19,961 10,141

Surplus before tax 8 23,618 39,356 28,649 22,538

Taxation 9 (337) (749) - -

Surplus for the year 23,281 38,607 28,649 22,538

Other comprehensive income

Actuarial gain/(loss) in respect of pension schemes 183 (1,224) 183 (1,224)

Total other comprehensive income/(expense) 183 (1,224) 183 (1,224)

Total comprehensive income for the year 23,464 37,383 28,832 21,314

Total comprehensive income attributable to:

– the Association 23,440 37,348 28,832 21,314

– jointly controlled entities accounted for by the equity method 24 35 - -

23,464 37,383 28,832 21,314

All results for the current and prior years are attributable to continuing operations. The notes on pages 116 to 157 form part of these financial statements.

Annual Report and Group Financial Statements 2019/20 111 Consolidated Statement of Financial Position As at 31 March 2020

Group Group Association Association 2020 2019 2020 2019 Note £000s £000s £000s £000s Fixed assets Property, plant and equipment 10 2,111,976 1,975,924 1,964,567 1,929,303 Investment properties 11 143,299 106,934 125,315 90,110 Investment in social HomeBuy 12 7,267 7,478 7,267 7,478 Unlisted investments 13 7,888 8,084 7,888 8,084 Investment in connected entities 14 1,968 1,790 3,708 3,530 Investment in joint ventures 15 1,910 1,886 1,294 1,294

2,274,308 2,102,096 2,110,039 2,039,799 Current assets Stock 16 109,709 87,359 17,586 9,418 Trade and other debtors 17 25,876 14,984 213,112 90,752 Cash and cash equivalents 58,934 51,964 49,999 44,038 194,519 154,307 280,697 144,208 Creditors: amounts falling due within one year 18 (111,861) (62,180) (103,660) (57,427)

Net current assets 82,658 92,127 177,037 86,781

Total assets less current liabilities 2,356,966 2,194,223 2,287,076 2,126,580 Creditors: amounts falling due after more than one year 19 (1,700,968) (1,564,413) (1,688,406) (1,558,466) Provision for liabilities charges 21 (3,500) - (2,500) - Post employment benefits 25 (8,574) (9,350) (8,574) (9,350) Total net assets 643,924 620,460 587,596 558,764 Reserves Called up share capital 22 - - - - Retained equity 643,494 620,030 587,166 558,334 General reserve 430 430 430 430 Total reserves 643,924 620,460 587,596 558,764

Retained equity includes the net assets of the Samuel Lewis Foundation, an endowment fund. See Note 29 for further information on its net assets.

The financial statements on pages 110 to 157 were authorised for issue by the Board of Directors on 20 July 2020 and signed on its behalf by:

Arthur Merchant Janet Collier Iain Mackrory-Jamieson Chair Board member Company Secretary

Southern Housing Group Limited is incorporated under the Co-operative and Community Benefit Societies Act 2014 (Registered Number IP31055R)

112 / 06. Audited financial statements of the Group Consolidated Statement of Changes in Reserves For the year ended 31 March 2020

Retained equity General reserve Total reserves Group £000s £000s £000s

Reserves at 1 April 2018 582,647 430 583,077 Surplus for the year 38,607 - 38,607 Actuarial loss on pension schemes (1,224) - (1,224) Reserves at 31 March 2019 620,030 430 620,460 Surplus for the year 23,281 - 23,281 Actuarial gain on pension schemes 183 - 183

Reserves at 31 March 2020 643,494 430 643,924

Association £000s £000s £000s

Reserves at 1 April 2018 537,020 430 537,450 Surplus for the year 22,538 - 22,538 Actuarial loss on pension schemes (1,224) - (1,224)

Reserves at 31 March 2019 558,334 430 558,764

Surplus for the year 28,649 - 28,649 Actuarial gain on pension schemes 183 - 183

Reserves at 31 March 2020 587,166 430 587,596

The general reserve records funds that have been given to the Group for use on some estates. Retained equity includes the net assets of the Samuel Lewis Foundation, an endowment fund, please see Note 29 for further information on its net assets.

Annual Report and Group Financial Statements 2019/20 113 Consolidated Statement of Cash Flows For the year ended 31 March 2020

Group Group 2020 2019 Note £000s £000s Cash flow from operating activities Surplus before tax 23,618 39,356 Share of operating surplus in joint ventures (24) (35) Net Interest and financing costs 38,405 32,843 Operating surplus 61,999 72,164

Adjustments for: Depreciation 10 26,659 24,892 Gain on disposal of fixed assets (24,049) (9,694) Loss/(gain) on revaluation of investment properties 5,865 (568) Impairment 10 2,800 - Government grants utilised in the year (9,846) (9,620) Increase in stock and Homeflex property disposal (21,760) (33,023) Increase in trade and other debtors (10,892) (1,996) Increase/(decrease) in trade and other creditors 5,971 (2,138) Increase/(decrease) in provisions 2,701 (1,996) Corporation tax paid - (1,049) Net cash generated from operating activities 39,448 36,972

Cash flow from investing activities Purchase of property, plant and equipment 10 (197,288) (133,102) (Disposals)/additions of investments (40,721) 4,646 Proceeds from disposal of property, plant and equipment 10 51,910 29,738

Distributions received from joint ventures 328 396 (Increase)/decrease in loan to joint venture (178) 13 Interest received 862 669 Government grants received 46,563 3,611 Proceeds from sale of social HomeBuy investments 423 226 Net cash from investing activities (138,101) (93,803)

Cash flow from financing activities Interest paid (42,401) (34,872) Loan repayments (59,317) (391,338) New secured loans 207,341 462,631 Net cash generated from financing activities 105,623 36,421

Net increase/(decrease) in cash and cash equivalents 6,970 (20,410) Cash and cash equivalents at the beginning of the year 51,964 72,374 Cash and cash equivalents at the end of the year 58,934 51,964

114 / 06. Audited financial statements of the Group Consolidated Statement of Cash Flows (continued) For the year ended 31 March 2020

Group Group cash flow Group 2019 and non-cash items* 2020 £000s £000s £000s

Group reconciliation of net debt

Cash and cash equivalents 51,964 6,970 58,934

Housing loans and listed bonds (828,604) (149,828) (978,432)

Net debt (776,640) (142,858) (919,498)

* Included are non-cash items which increase net debt by £1,840k. These represent effective interest rate adjustments, which include debt issue costs, and movements on accrued interest.

At 31 March 2020, restricted cash comprising balances on bank accounts held on trust for those who own a share of their property totalled £10,144,000 (2019: £9,810,000). Cash also includes a restricted balance of £202,000 (2019: £202,000) where a charge is held as security to cover future development costs on a particular scheme.

A further £15,285,000 (2019: £15,285,000) restricted balance is held relating to the Samuel Lewis Foundation, a permanent endowment.

Annual Report and Group Financial Statements 2019/20 115 Notes to the Financial Statements For the year ended 31 March 2020

1. Principal accounting policies

General information and statement Segmental reporting of compliance For the purpose of segmental reporting, the chief Basis of preparation operating decision maker (“CODM”) is considered to be the Executive Management Team (“EMT”). The financial statements have been prepared in In line with the segments reported to the CODM, accordance with and are compliant with applicable the presentation of these financial statements and Generally Accepted Accounting Standards in the United accompanying notes reflect the Group’s management and Kingdom including Financial Reporting Standard 102 internal reporting. The information reviewed within the (FRS 102), the Co-operative and Community Benefit management accounts to assess performance and make Societies Act 2014, the Co-operative and Community strategic decisions is consistent with and closely aligned Benefit Societies (Group Accounts) Regulations 1969, to these financial statements. Segmental reporting is the Housing and Regeneration Act 2008, the Statement presented in Note 2 to the financial statements where of Recommended Practice “Accounting by Registered information about income and expenditure attributable to Social Landlords” 2018 ("SORP") and the accounting the material operating segments are presented on the basis direction for private registered providers of social of the tenure type of the housing assets held by the Group. housing 2019, issued by the Regulator of Social Housing. This is appropriate on the basis of the similarity of the They have been prepared on the historical cost basis services provided, the nature of the associated risks, (as modified by the revaluation of investment properties and the nature of the regulatory environment in which and financial instruments). the Group operates.

The accounting policies have been consistently applied. Assets and liabilities are not reported by operating segment The Association and the Group are public benefit entities or tenure, other than housing properties which are split by registered in England. The accounting policies are set out tenure type and are shown in Note 10. below or in the relevant note disclosures relating to each balance or transaction. Going concern

Basis of consolidation The Group’s business activities, its current financial position and factors that are likely to affect its future The consolidated financial statements incorporate the development are set out within the Strategic Review. financial statements of Southern Housing Group Limited The Board’s assessment of going concern is focused on (Parent Body), Southern Home Ownership Limited (SHOL), the Group’s liquidity and its compliance with loan Southern Space Limited (SSL), Southern Development covenants. The review period is 18 months from the Services Limited (SDSL), Southern Housing Construction signing of the financial statements. Limited (SHCL) and Spruce Homes Limited and are consolidated in accordance with FRS 102 and the The Board has considered the impact of COVID-19 on its Co-operative and Community Benefit Societies Act 2014. short-term forecasts, applying stress tests to the early years of the long term financial plan that reflect the potential for Control is achieved where the Group has the power to heightened financial risk stemming from the effects of the govern the financial and operating policies of an entity so pandemic. The Board considers these tests to represent a as to obtain benefits from its activities. All intercompany severe yet plausible view of the risks that may impact the transactions and balances between Group entities are Group. The tests consider the impact of adverse movements eliminated in full upon consolidation. in macroeconomic indicators, as well as sharp reductions in income and significant above inflationary increases in costs. The joint venture investments in Triathlon Homes LLP and Tenant rent arrears are presumed to double in the period Affinity (Reading) Holdings Limited are accounted for under review with a conservative assumption on eventual using the equity accounting method in these consolidated recovery also modelled. financial statements. Affinity Housing Services (Reading) is accounted for as a jointly controlled operation.

116 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

1. Principal accounting policies (continued)

The Group is able to withstand these stresses whilst Key accounting judgements and estimation remaining fully compliant with its loan covenants and uncertainty without employing any mitigating actions. More details of the stress tests employed are provided in the viability In preparing the financial statements, the Group is required assessment on pages 88-89. The Group's liquidity position to make certain estimates, judgements and assumptions. is set out in the going concern statement on page 88. Estimates and assumptions will, by definition, seldom equal the related actual results. These are continually evaluated No material uncertainties related to events or conditions based on historical experience and other factors, including that may cause significant doubt about the ability of the expectations of future events that are believed to be Group to continue as a going concern have been identified. reasonable based on the information available. On this basis, the Board has a reasonable expectation that the Group has adequate resources to continue in The critical judgements made in these financial operational existence for the foreseeable future, being a statements are: period of at least twelve months after the date on which the report and financial statements are signed. Property assets Accordingly, the Directors continue to adopt the going concern basis in preparing the Group’s consolidated Management have applied judgement in determining financial statements. whether assets are recognised as property, plant and equipment, investment properties or stock. For mixed Cash and cash equivalents tenure developments the appropriate share of costs for individual units constructed is allocated on a pro-rata area Cash and cash equivalents are cash and short term, highly basis, in line with the initial appraisal. This is then revised liquid investments that are convertible for use as cash at once the final tenure mix has been confirmed. less than three months’ notice with minimal risk to the principal sum. Cash balances also include restricted cash Management reviews the useful life of the assets which held on behalf of the Group’s leaseholders, for which there are depreciated at a component level over their estimated is an associated creditor balance held (see Note 18) and useful economic lives based on experience. any cash relating to our permanent endowment which is only available for specific uses. The Association has taken When considering property assets for impairment, advantage of the exemption under FRS 102 and has not units are grouped together as cash generating units, prepared a cash flow statement. by block and tenure type where the assets are in use and at a scheme level for assets under construction. As these Gift aid assets are held for service potential, judgement is required in determining the appropriate method for calculating Gift aid income is recognised in the statement of the value in use. An impairment indicator was identified comprehensive income by the Association and as a in respect of two schemes under construction and an distribution in the subsidiary making the gift aid payment impairment of £2,800,000 has been recognised. when the intended gift has been confirmed. It is only See Note 10 for more detail. provided for where a legal obligation exists. Income and distribution are eliminated on consolidation where the gift HomeBuy loans is from a Group company. HomeBuy loans are accounted for as public benefit VAT concessionary loans meaning that they are held at cost, being the share of value of the property at the date of A large proportion of the Group’s income comprises rental acquisition, as opposed to being held at the fair value of income which is exempt for VAT purposes and gives rise the loans which FRS 102 would otherwise require. to a partial exemption calculation. Expenditure is therefore shown inclusive of VAT. Recoverable VAT arising from partially exempt activities is credited to the statement of comprehensive income.

Annual Report and Group Financial Statements 2019/20 117 Notes to the Financial Statements For the year ended 31 March 2020

1. Principal accounting policies (continued)

Triathlon Homes LLP Stock is held at the lower of cost or net realisable value. This requires management to estimate the expected selling The share of the net assets and net income of Triathlon price of properties under construction as well as the cost Homes LLP is not included under equity accounting due to to complete construction. The carrying value of stock is it having negative net reserves for which the Group has no disclosed in Note 16. contractual liability. The fair value of investment properties is determined Gift aid annually by professional external valuers. They use certain key assumptions to assess the values which can vary due Management has made a judgement that it is probable to the sensitivity of the inputs such as discount rates, yields that gift aid payments will be made to the parent within and market conditions. See Note 11 for further detail. 9 months of the year end by the subsidiary entities where sufficient funds are available for the year ended 31 March Debtors 2020. In accordance with FRS 102 the tax provision is assessed on the basis that gift aid payments are probable. The Group makes an estimate of the recoverable value of tenant debtors and other debtors. When assessing Therefore, the corporation tax impact of probable gift aid impairment of trade and other debtors the Group considers payments has been recognised in the calculation of the tax factors such as the ageing profile and historical recovery provision for the period. rates to determine recoverability. See Note 17 for the value of rent arrears and bad debt provision. Provisions Post employment benefits Provisions are recognised when it is probable that the group will have to incur costs to satisfy a legal Estimation of pension assets and liabilities depends on a or constructive obligation. The amount recognised is number of complex judgements relating to the discount management’s best estimate of the costs that will be rate used, the rate at which salaries are projected to incurred to meet the obligation identified increase, changes in retirement ages, mortality rates, expected returns on pension fund assets and guaranteed Sources of estimation uncertainty: minimum payment (GMP) equalisation. The Group uses qualified actuaries to value its pension assets and liabilities. Property assets 2.Turnover The proportion sold as the first tranche varies from property to property based on the percentage purchased Turnover and operating surplus by the shared owner. The first tranche proportion of unsold and under construction properties is estimated Operating surplus includes gains and losses on the sale based on the historical experience and expected selling of fixed assets and revaluation gains and losses on percentage. The current estimate of the proportion that will investments, as these are considered to be part of the be sold as first tranche is 35%. Group’s operating activities. Gift aid receipts are not included within the operating surplus as the amount paid is Management reviews the useful life of the assets which considered annually and therefore is not an operating item. are depreciated at a component level over their estimated useful economic lives based on experience. For leasehold Rent receivable assets the maximum depreciation period is that of the remaining term of the lease. For those properties occupied Rental income from social housing and private on short leases, the maximum depreciation period is that of rental properties owned by the Group is recognised on the remaining term of the lease. an accruals basis (net of void losses) as it falls due.

118 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

2. Turnover (continued)

Service charge income Grants

Service charge income is recognised on an accruals basis Revenue grants are credited to the statement of as it falls due. The Group operates both fixed and variable comprehensive income in the same period as the service charges on a scheme-by-scheme basis in full expenditure to which they relate and the performance consultation with residents. The service charges on conditions are met. The cumulative grant amortised is all schemes are set on the basis of budgeted spend. disclosed as part of the contingent liabilities until the Where variable service charges are used the budget will property it funds is disposed of or ceases to be used for include an allowance for the surplus or deficit from prior social housing purposes. years, with a surplus being returned to residents in the form of a reduced charge in the following year and a deficit Social Housing Grant is the capital grant provided by being recovered via a higher service charge or by alternative Homes England (formerly the Homes and Communities methods if the contract allows. Agency), the Greater London Authority or other Government agency to wholly or partially fund Registered Management fees Providers when developing social housing. The grant is carried as deferred income in the balance sheet and Management fees receivable (excluding VAT) for services amortised to the statement of comprehensive income provided to other entities are recorded when they fall through turnover, over the life of the structure of the due. Fees are charged to the Group's subsidiaries for properties to which it relates when they are ready to let. management and support services and are apportioned Social Housing Grant becomes recyclable at the point the as a percentage of turnover. Intra group fees receivable related property is sold and is transferred to a recycled and payable are eliminated on consolidation. capital grant fund until it is reinvested in a replacement property. If there is no requirement to recycle or repay Support services the grant on disposal of the assets any unamortised grant remaining within creditors is released and recognised as Support service income for provision of extra care for income in the statement of comprehensive income. Grants residents with specific needs is recognised on an accruals which cannot be recycled are returned to the funder. basis as it falls due.

Commercial income

Income from the letting of commercial properties is recognised on an accruals basis as it falls due. Lease incentives are amortised over the life of the lease.

Property sales income

Receipts from the sale of the first tranche of shared ownership properties and proceeds of open market sales are recognised within turnover on legal completion. The sale of subsequent tranches (staircasing) of shared ownership properties and the sale of housing properties are recorded net of carrying value as a gain or loss on disposal of fixed assets.

Annual Report and Group Financial Statements 2019/20 119 Notes to the Financial Statements For the year ended 31 March 2020

2. Turnover and operating surplus

2020 2020 2020 2020 2019 2019 2019 2019 Turnover Cost of Operating Operating Turnover Cost of Operating Operating Group sales costs surplus sales costs surplus £000s £000s £000s £000s £000s £000s £000s £000s

Social housing lettings 162,917 - (136,703) 26,214 159,913 - (122,850) 37,063

Other social housing activities

Charges for support services 4,755 - (5,296) (541) 4,687 - (5,198) (511)

First tranche low-cost home ownership sales 15,245 (13,911) - 1,334 24,892 (20,840) - 4,052

Impairment* - - (2,800) (2,800) - - - -

Other 155 - - 155 99 - - 99

Non-social housing activities

Commercial income/(expenses) 2,514 - (167) 2,347 2,492 - (148) 2,344

Private rental lettings 2,893 - (468) 2,425 2,112 - (880) 1,232

Open market sales 47,321 (33,404) - 13,917 35,405 (18,449) - 16,956

Other 1,046 - (282) 764 866 - (199) 667

236,846 (47,315) (145,716) 43,815 230,466 (39,289) (129,275) 61,902

(Loss)/gain on revaluation of investment (5,865) - - (5,865) 568 - - 568 properties (Note 11)

Gain on disposal of fixed assets (Note 5) 52,000 (27,951) - 24,049 29,173 (19,479) - 9,694

Total of operating activities 282,981 (75,266) (145,716) 61,999 260,207 (58,768) (129,275) 72,164

2020 2020 2020 2020 2019 2019 2019 2019 Turnover Cost of Operating Operating Turnover Cost of Operating Operating Association sales costs surplus sales costs surplus £000s £000s £000s £000s £000s £000s £000s £000s

Social housing lettings 161,884 - (136,346) 25,538 156,842 - (123,203) 33,639

Other social housing activities

Charges for support services 4,755 - (5,296) (541) 4,687 - (5,198) (511)

First tranche low-cost home ownership sales 5,797 (5,002) - 795 17,862 (13,802) - 4,060

Impairment* - - (600) (600) - - - -

Other 155 - - 155 99 - - 99

Non-social housing activities

Commercial income/(expenses) 2,477 - (167) 2,310 2,484 - (148) 2,336

Private rental lettings 2,330 - (340) 1,990 1,794 - (683) 1,111

Other 4,017 (1) (4,373) (357) 1,195 - - 1,195

181,415 (5,003) (147,122) 29,290 184,963 (13,802) (129,232) 41,929

Revaluation (deficit)/surplus on investments (Note 11) (5,650) - - (5,650) (3,298) - - (3,298)

Gain on disposal of fixed assets (Note 5) 52,000 (28,221) - 23,779 25,240 (18,650) - 6,590

Total of operating activities 227,765 (33,224) (147,122) 47,419 206,905 (32,452) (129,232) 45,221

*The impairment charge relates to shared ownership properties under construction.

120 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

2. Particulars of income and expenditure from social housing lettings

Supported and General older people's Affordable Intermediate Shared Group 2020 needs housing rent rent ownership Total £000s £000s £000s £000s £000s £000s Rent receivable net of identifiable service charges 91,038 13,275 9,189 8,049 14,780 136,331 Service charges receivable 12,001 1,748 - 569 2,277 16,595 Gross rental income 103,039 15,023 9,189 8,618 17,057 152,926 Grant amortisation 6,842 998 325 482 1,198 9,845 Management fee 101 15 5 7 18 146 Turnover from social housing lettings 109,982 16,036 9,519 9,107 18,273 162,917 Management (31,104) (4,537) (2,251) (1,490) (5,638) (45,020) Service charge costs (19,858) (2,897) (1,413) (947) (3,519) (28,634) Rent losses from bad debts (1,459) (213) (103) (69) - (1,844) Routine maintenance (22,458) (3,276) (1,585) (1,068) - (28,387) Planned maintenance (4,015) (586) (283) (191) - (5,075) Depreciation (including component write off) (21,946) (3,201) (1,552) (1,044) - (27,743) Operating costs on social housing lettings (100,840) (14,710) (7,187) (4,809) (9,157) (136,703) Operating surplus on social housing lettings 9,142 1,326 2,332 4,298 9,116 26,214 Operating margin % 8% 8% 24% 47% 50% 16% Void losses 275 41 57 264 - 637

Supported and General older people's Affordable Intermediate Shared Group 2019 needs housing rent rent ownership Total £000s £000s £000s £000s £000s £000s Rent receivable net of identifiable service charges 90,455 13,710 9,088 7,984 13,964 135,201

Service charges receivable 10,174 1,542 - 506 2,870 15,092

Gross rental income 100,629 15,252 9,088 8,490 16,834 150,293

Grant amortisation 6,291 954 313 418 1,644 9,620

Turnover from social housing lettings 106,920 16,206 9,401 8,908 18,478 159,913

Management (30,359) (4,602) (1,946) (1,503) (5,555) (43,965)

Service charge costs (15,605) (2,365) (1,000) (796) (3,407) (23,173)

Rent losses from bad debts (833) (126) (53) (41) (156) (1,209)

Routine maintenance (19,268) (2,921) (1,235) (1,089) - (24,513)

Planned maintenance (4,531) (687) (290) (225) 59 (5,674)

Depreciation (including component write off) (19,178) (2,907) (1,229) (1,002) - (24,316)

Operating costs on social housing lettings (89,774) (13,608) (5,753) (4,656) (9,059) (122,850)

Operating surplus on social housing lettings 17,146 2,598 3,648 4,252 9,419 37,063

Operating margin % 16% 16% 39% 48% 51% 23%

Void losses 487 72 42 228 - 829

Annual Report and Group Financial Statements 2019/20 121 Notes to the Financial Statements For the year ended 31 March 2020

2. Particulars of income and expenditure from social housing lettings (continued)

Supported and General older people's Affordable Intermediate Shared Association 2020 needs housing rent rent ownership Total £000s £000s £000s £000s £000s £000s Rent receivable net of identifiable service charges 91,005 13,275 8,972 7,960 14,292 135,504 Service charges receivable 11,980 1,748 - 569 2,094 16,391 Gross rental income 102,985 15,023 8,972 8,529 16,386 151,895 External management fee 101 15 5 7 18 146 Grant amortisation 6,842 998 325 482 1,196 9,843 Turnover from social housing lettings 109,928 16,036 9,302 9,018 17,600 161,884 Management (31,099) (4,537) (2,191) (1,478) (5,436) (44,741) Service charge costs (19,857) (2,897) (1,399) (944) (3,471) (28,568) Rent losses from bad debts (1,459) (213) (103) (69) - (1,844) Routine maintenance (22,458) (3,276) (1,582) (1,067) - (28,383) Planned maintenance (4,015) (586) (283) (191) - (5,075) Depreciation (including component write off) (21,945) (3,201) (1,546) (1,043) - (27,735) Operating costs on social housing lettings (100,833) (14,710) (7,104) (4,792) (8,907) (136,346) Operating surplus on social housing lettings 9,095 1,326 2,198 4,226 8,693 25,538 Operating margin % 8% 8% 24% 47% 49% 16% Void Losses 272 41 57 263 - 633

Supported and General older people's Affordable Intermediate Shared Association 2019 needs housing rent rent ownership Total £000s £000s £000s £000s £000s £000s Rent receivable net of identifiable service charges 90,455 13,710 9,088 7,652 10,724 131,629

Service charges receivable 10,174 1,542 - 506 1,867 14,089

Gross rental income 100,629 15,252 9,088 8,158 12,591 145,718

External management fee 811 - - - 1,198 2,009

Grant amortisation 6,291 954 313 403 1,154 9,115

Turnover from social housing lettings 107,731 16,206 9,401 8,561 14,943 156,842

Management (31,062) (4,708) (1,991) (1,545) (5,699) (45,005)

Service charge costs (15,605) (2,365) (1,000) (776) (2,863) (22,609)

Rent losses from bad debts (833) (126) (53) (41) (153) (1,206)

Routine maintenance (19,268) (2,921) (1,235) (958) - (24,382)

Planned maintenance (4,531) (687) (290) (225) - (5,733)

Depreciation (including component write off) (19,178) (2,907) (1,229) (954) - (24,268)

Operating costs on social housing lettings (90,477) (13,714) (5,798) (4,499) (8,715) (123,203)

Operating surplus on social housing lettings 17,254 2,492 3,603 4,062 6,228 33,639

Operating margin % 16% 15% 38% 47% 42% 21%

Void Losses 487 72 42 218 - 819

122 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

3. Board and senior executive emoluments (key management personnel)

The remuneration paid to the directors (who for the purposes of this note include the members of the Board, committee members, the Group Chief Executive and any other person who is a member of the Executive Management Team) was as follows:

2020 2019 Group £000s £000s

Emoluments 952 970

Pension contributions 60 66

Non Executive Board member emoluments 195 136

1,207 1,172

The remuneration (excluding pension contributions and NI) payable to the Group Chief Executive, who is also the highest paid director was:

2020 2019 £s £s

Salary 232,927 199,698

Benefits in kind 1,034 450

Total remuneration (excluding pension contributions and NI) 233,961 200,148

The remuneration paid to the highest paid director in 2019 includes remuneration prior to 1 September 2018 when they were Group Development Director, before taking up their appointment as Chief Executive.

The Remuneration and Nominations Committee sets the pay of the Executive Directors at a level to attract and retain the talent required to lead the Group. In doing this, it takes account of a market comparative exercise which is carried out annually by an independent body. Our aim is not to pay the highest salaries in the market but to remain competitive.

The pension schemes available to the Executive Directors are offered on the same terms as to other staff. There are no different pension arrangements for the Executive Directors.

Annual Report and Group Financial Statements 2019/20 123 Notes to the Financial Statements For the year ended 31 March 2020

4. Employee information

Group Association Monthly average number of full-time equivalent employees Group Association 2020 2019 2020 2019 (FTE = 35 hours per week): FTE FTE FTE FTE

Average number of full-time equivalent employees 994 922 994 922

2020 FTE numbers include the insourcing of the Group's estate care service during the year.

Group Association Staff costs Group Association 2020 2019 2020 2019 (for the above employees) £000s £000s £000s £000s

Wages and salaries 33,522 30,977 33,522 30,977

Social security costs 3,635 3,228 3,635 3,228

Other pension costs 3,465 2,666 3,465 2,666

Termination benefits 535 386 535 386

41,157 37,257 41,157 37,257

Remuneration paid to staff including Executives in bands from £60,000 upwards:

Group Group FTE = 35 hours per week 2020 2019 FTE FTE

£60,000 - £70,000 54 48

£70,000 - £80,000 28 27

£80,000 - £90,000 15 13

£90,000 - £100,000 9 10

£100,000 - £110,000 6 3

£110,000 - £120,000 5 2

£120,000 - £130,000 2 5

£130,000 - £140,000 5 4

£140,000 - £150,000 1 1

£150,000 - £160,000 - 1

£180,000 - £190,000 2 1

£220,000 - £230,000 - 1

£240,000 - £250,000 - 1

£280,000 - £290,000 1 -

Remuneration includes salary, allowances, pension contributions, employer's NI, benefits in kind and non-consolidated bonus.

124 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

5. Gain on disposal of fixed assets

The gain or loss on disposal of fixed assets is recorded as the net value of the proceeds and the costs of sale which include the carrying value of the proportion of the property being sold and the associated grant.

HomeBuy and HomeBuy and Housing other tangible Housing other tangible Group property fixed assets Total property fixed assets Total 2020 2020 2020 2019 2019 2019 £000s £000s £000s £000s £000s £000s

Sale proceeds 49,772 2,228 52,000 28,494 679 29,173

Cost of sales (26,734) (1,079) (27,813) (19,182) (232) (19,414)

Incidental sale expenses (137) (1) (138) (65) - (65)

22,901 1,148 24,049 9,247 447 9,694

HomeBuy and HomeBuy and Housing other tangible Housing other tangible Association property fixed assets Total property fixed assets Total 2020 2020 2020 2019 2019 2019 £000s £000s £000s £000s £000s £000s

Sale proceeds 49,772 2,228 52,000 24,787 453 25,240

Cost of sales (27,004) (1,079) (28,083) (18,453) (138) (18,591)

Incidental sale expenses (137) (1) (138) (59) - (59)

22,631 1,148 23,779 6,275 315 6,590

6. Interest receivable and similar income

Interest income is recognised on a receivable basis as it falls due.

Group Group Association Association Interest and investment income 2020 2019 2020 2019 £000s £000s £000s £000s

Interest from investments 675 586 4,434 1,869

Interest from bank deposits 515 479 455 431

Total 1,190 1,065 4,889 2,300

Total intercompany interest received by the Association in the year was £4,089,000 (2019: £1,735,000).

Annual Report and Group Financial Statements 2019/20 125 Notes to the Financial Statements For the year ended 31 March 2020

7. Interest payable and similar charges

Interest payable on loans is recognised on a payable basis as it falls due together with amortisation charges. Interest is capitalised on properties under construction on a fair proportion of the borrowings of the Group and Association as a whole, using the weighted average interest rate for borrowing. The Group’s weighted average interest rate for borrowing is 4.29% per annum (2019: 4.17% per annum).

Premiums on issue of debentures are treated as deferred income and written back to the statement of comprehensive income over the period of the loan.

Group Group Association Association Net interest and finance costs charged 2020 2019 2020 2019 £000s £000s £000s £000s

Loans and bonds (40,244) (33,655) (40,244) (33,266)

Other fees (4,275) (4,265) (4,267) (4,136)

Less: interest payable capitalised 5,080 5,598 1,047 3,864

(39,439) (32,322) (43,464) (33,538)

Deferred income written back 50 111 50 111

(39,389) (32,211) (43,414) (33,427)

Loan restructure costs and termination of derivatives - (1,487) - (1,487)

Total (39,389) (33,698) (43,414) (34,914)

Group Group Association Association Other finance costs: pension schemes 2020 2019 2020 2019 £000s £000s £000s £000s

Group pension scheme

Expected return on pension scheme assets 1,730 1,797 1,730 1,797

Interest on pension scheme liabilities (1,890) (1,951) (1,890) (1,951)

Isle of Wight Council pension scheme

Expected return on pension scheme assets 142 141 142 141

Interest on pension scheme liabilities (188) (197) (188) (197)

Total (206) (210) (206) (210)

Total interest and similar charges (39,595) (33,908) (43,620) (35,124)

126 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

8. Surplus before tax

The operating surplus before tax is stated after charging:

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Depreciation:

Property 22,539 22,090 22,532 22,041

Other tangible fixed assets 4,120 2,802 4,120 2,802

Impairment 2,800 - 600 -

Stock cost of sales recognised as an expense 47,315 39,289 5,003 13,802

Operating lease charges:

Property - 97 - 97

Other equipment 320 394 320 394

Auditors' remuneration:

External audit fee (including expenses, excluding VAT) 265 192 205 155

Other assurance services (excluding VAT) - 48 - 48

9. Taxation

No taxation is payable on the charitable surpluses of the Association. Taxation is chargeable on the surpluses of all subsidiary entities. Surpluses either in whole or in part are transferred to the parent by a gift aid distribution which then reduces the taxation charge accordingly. The tax impact of a gift aid payment is accounted for when it is probable that the gift aid payment will be made. All entities are registered for Value Added Tax (VAT). As the majority of group activities are exempt from VAT, the recovery under partial exemption is minimal.

The tax charge has been assessed on the basis that it is probable that gift aid will be paid to the parent by the Group companies within nine months of the year end.

Deferred taxation

Deferred tax arises from timing differences that are differences between taxable profits and total comprehensive income as stated in the financial statements. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements.

Deferred taxation is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 102 Section 29.

Unrelieved tax losses and other deferred tax assets are only recognised when it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Deferred tax is measured using tax rates and laws that have been enacted or substantively enacted by the period end and that are expected to apply to the reversal of the timing difference.

Annual Report and Group Financial Statements 2019/20 127 Notes to the Financial Statements For the year ended 31 March 2020

9. Taxation (continued)

Group Group Association Association UK corporation tax 2020 2019 2020 2019 £000s £000s £000s £000s

Current tax at 19% (2019: 19%) 481 187 - -

Adjustment to tax (credit)/charge in respect of previous years (188) (176) - -

Total tax charge 293 11 - -

Deferred tax expense 44 669 - -

Adjustments in respect of prior periods - 69 - -

337 749 - -

The total tax charge for the year is higher (2019: lower) than the standard rate of corporation tax in the UK 19% (2019: 19%). The differences are explained below.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Current tax reconciliation

Surplus on ordinary activities before tax 23,618 39,356 28,649 22,538

Less surplus from charitable activities (28,649) (22,538) - -

Taxable (deficit)/surplus on ordinary activities before tax (5,031) 16,818 28,649 22,538

Total tax (credit)/charge (956) 3,195 5,443 4,282

Effects of:

Chargeable gains - 428 - -

Timing difference in relation to revaluation (33) 802 - -

Change in tax rates 77 (77) - -

(Income not taxable)/ Expenses not deductible for tax purposes 3,731 (183) (5,443) (4,282)

Qualifying charitable donations paid or to be paid within 9 months of the year end (2,527) (3,585) - -

Adjustment to tax charge in respect of previous years (188) (177) - -

Share of taxable profits in Triathlon Homes LLP 233 331 - -

Previously unrecognised deferred tax - 15 - -

Total tax charge (see above) 337 749 - -

128 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

9. Taxation (continued)

Group Group Association Association Deferred taxation 2020 2019 2020 2019 £000s £000s £000s £000s

At 1 April 738 - - -

Timing differences 44 669 - -

Adjustments in respect of prior periods - 69 - -

At 31 March 782 738 - -

Factors that may affect future tax charges The standard rate of corporation tax in the UK remained at 19% in 2020. Further changes were announced in March 2020. The rate will remain at 19% from 1 April 2020 and will also be set at 19% for the financial year beginning 1 April 2021.

10. Property, plant and equipment

Property, plant and equipment comprise housing properties completed properties when handed over for letting or sale. and other fixed assets. Capitalisation of development costs ceases at practical completion including the accrual of known costs at that Housing properties time and all subsequent costs are expensed.

Housing properties are held at historic cost less Depreciation accumulated depreciation. Cost includes the cost of acquiring land and buildings, construction costs as Freehold land is not subject to depreciation. Depreciation well as directly attributable staff costs and interest is charged on a straight-line basis over the useful economic capitalised during the development period from lives of fixed assets to write off to the estimated residual commencement on site. value. The following useful economic lives are used:

Costs are split between the structure and those major Housing properties held for letting: components which require periodic replacement. Structure 100 years

Replacement or restoration of such major Major components components is capitalised and depreciated over the Bathroom 30 years average estimated useful life which has been set taking into account professional advice, the Group’s asset Heating system (Gas) 15 years management strategy and the requirements of the Heating system (Electric) 25 years Decent Homes Standard. Kitchen 20 years

Works to existing properties which result in an increase Roof (Pitched) 60 years in the net rental stream over the lives of the properties, Roof (Flat) 20 years thereby enhancing the economic benefits of the assets, Windows 30 years are capitalised as improvements. This may be as a result of an increase in net rental income, a reduction in future Wiring 30 years maintenance costs or a significant extension of the useful economic life of the property. It is Group policy to ensure resident shared owners maintain the property in a continuous state of sound Housing properties in the course of construction are held at repair and the Group considers that any depreciation cost and are not depreciated. They are transferred to calculation based on the property’s current value would

Annual Report and Group Financial Statements 2019/20 129 Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

be insignificant, due to the large residual value and long Therefore, the Group follows the guidelines of the SORP economic lives. Therefore, shared ownership properties and uses the depreciated replacement cost of the property are not depreciated. as a reasonable estimate of the recoverable amount.

Where a decision is made to demolish and redevelop The assessment identified two schemes which required an properties, the useful economic life of the asset, impairment adjustment, Leagrave Street and Vanston Place. including components, is re-estimated at the point In both cases, the assets are being held for their service that Board approval is obtained and depreciation is potential and so the assets were tested for impairment then charged over the remaining life of the asset. by comparing the cost of the assets with the value in use. Since the assets were under construction and assets For those properties occupied on short leases the are to be held for their service potential, the value in use maximum depreciation period is that of the remaining is considered to be the cost to construct a replacement term of the lease. asset reflecting optimal construction conditions and costs rectifying issues with land identified subsequent Impairment to purchase. Remediation of ground contamination at Leagrave Street required further spend, resulting in an At each balance sheet date, the value of property, plant and impairment adjustment of £2,200,000. Delays caused equipment assets is formally assessed to determine whether by design changes at Vanston Place resulted in additional there is an indication that the carrying value of the asset costs being incurred, which gave rise to an impairment is greater than the recoverable amount and therefore may adjustment of £600,000. These have been included in other require impairment. This assessment is carried out by tenure social housing activities when analysed in Note 2 as these and at the estate/scheme level, such a level representing a costs relate to properties that are still under construction. cash generating unit. A scheme is defined as all units of the same tenure within one area or estate. As some of the properties constructed will be shared ownership, £1,820,000 of the impairment has been Impairment is normally assessed scheme by scheme recognised within housing properties under construction although for assets in use it may be at a block or unit with the remainder recognised against stock. level if more appropriate. Where there is evidence of impairment, fixed assets are written down to their recoverable amount. Any such write down is charged to operating surplus. In line with the Group’s objectives its social housing properties are held for their service potential and not purely for economic return.

130 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

Shared ownership Total property, Housing properties housing Housing properties Other fixed assets Group plant and held for letting properties under construction per following note equipment £000s £000s £000s £000s £000s

Cost

At 1 April 2019 1,740,403 275,608 131,046 79,069 2,226,126

Reclassification (to)/from investment properties (1,142) 569 (475) (45) (1,093)

Reclassification to other fixed assets - - (41) 41 -

Schemes completed 34,874 31,974 (66,848) - -

Homeflex tenure change (4,762) 3,186 - - (1,576)

Additions: New properties 41,939 - 120,775 - 162,714

Existing properties 30,315 123 (412) - 30,026

Other fixed assets - - - 8,982 8,982

Impairment - - (1,820) - (1,820)

Transfer from/(to) stock - (15) - - (15)

Disposals (31,737) (10,769) - (2,777) (45,283)

At 31 March 2020 1,809,890 300,676 182,225 85,270 2,378,061

Accumulated depreciation

At 1 April 2019 221,140 - - 29,062 250,202

Reclassification to investment properties (270) - - (25) (295)

Charge for year 22,539 - - 4,120 26,659

Eliminated in respect of disposals (8,745) - - (1,736) (10,481)

At 31 March 2020 234,664 - - 31,421 266,085

Net book value

At 31 March 2020 1,575,226 300,676 182,225 53,849 2,111,976

At 31 March 2019 1,519,263 275,608 131,046 50,007 1,975,924

Detail relating to other fixed assets can be found at the end of Note 10.

Annual Report and Group Financial Statements 2019/20 131 Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

Shared Housing Housing ownership properties Other fixed Total property, Association properties held housing under assets per plant and for letting properties construction following note equipment £000s £000s £000s £000s £000s

Cost

At 1 April 2019 1,735,217 265,755 99,296 79,069 2,179,337

Reclassification (to)/from investment properties (1,142) 569 (475) (45) (1,093)

Reclassification to other fixed assets - - (41) 41 -

Schemes completed 26,534 17,240 (43,774) - -

Homeflex tenure change (4,762) 3,186 - - (1,576)

Additions: New properties 41,939 - 18,878 - 60,817

Existing properties 30,318 123 (412) - 30,029

Other fixed assets - - - 8,982 8,982

Impairment - - (390) - (390)

Transfer from stock - (15) - - (15)

Disposals (31,735) (11,101) - (2,777) (45,613)

At 31 March 2020 1,796,369 275,757 73,082 85,270 2,230,478

Accumulated depreciation

At 1 April 2019 220,972 - - 29,062 250,034

Reclassification to investment properties (270) - - (25) (295)

Charge for year 22,532 - - 4,120 26,652

Eliminated in respect of disposals (8,744) - - (1,736) (10,480)

At 31 March 2020 234,490 - - 31,421 265,911

Net book value

At 31 March 2020 1,561,879 275,757 73,082 53,849 1,964,567

At 31 March 2019 1,514,245 265,755 99,296 50,007 1,929,303

Detail relating to other fixed assets can be found at the end of Note 10.

132 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

Properties held for security

Loan facilities, both drawn and undrawn, totalling £1,415m (2019: £1,312m) are secured against 17,266 (2019: 16,748) properties.

Group Group Group Group units Accommodation in management comprises: Group units units units tenure units 2019 additions disposals change/other 2020

Units owned and managed:

General needs 17,489 377 (336) 3 17,533

Housing for older people 2,284 - (123) 2 2,163

Supported housing 367 64 (4) (33) 394

Intermediate rent 870 - (35) 7 842

Private rent (investment properties) 203 64 - (6) 261

Affordable rent 1,121 129 (13) 43 1,280

Leasehold 2,678 87 (6) 182 2,941

Shared ownership 3,209 192 - (186) 3,215

28,221 913 (517) 12 28,629

Units managed on behalf of other landlords:

General needs - 692 - - 692

Supported housing 72 - - - 72

Intermediate rent - 294 - - 294

Leasehold 9 102 - 19 130

Shared ownership 32 308 - (27) 313

113 1,396 - (8) 1,501

Total units managed 28,334 2,309 (517) 4 30,130

Total units owned 28,221 913 (517) 12 28,629

In October 2019 the Association took on the repairs and housing management of 1,396 units owned by Triathlon LLP.

Annual Report and Group Financial Statements 2019/20 133 Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

Association Association Association Association units Accommodation in management comprises: Association units units units tenure units 2019 additions disposals change/other 2020

Units owned and managed:

General needs 17,485 377 (336) 3 17,529

Housing for older people 2,284 - (123) 2 2,163

Supported housing 367 64 (4) (33) 394

Intermediate rent 861 - - (28) 833

Private rent (investment properties) 167 64 - (5) 226

Affordable rent 1,121 129 (13) (2) 1,235

Leasehold 2,507 - (6) 287 2,788

Shared ownership 3,104 29 - (69) 3,064

27,896 663 (482) 155 28,232

Units managed on behalf of other landlords:

General needs 4 692 - - 696

Supported housing 72 - - - 72

Intermediate rent 9 294 - - 303

Affordable rent - 45 - - 45

Leasehold 130 102 - 51 283

Shared ownership 137 471 - (144) 464

352 1,604 - (93) 1,863

Total units managed 28,248 2,267 (482) 62 30,095

Total units owned 27,896 663 (482) 155 28,232

134 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

10. Property, plant and equipment (continued)

Other fixed assets

Other tangible fixed assets are stated at historic cost less accumulated depreciation and any accumulated impairment losses. Historic cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

Depreciation is charged on a straight-line basis over the useful economic lives of fixed assets to write off the cost to the estimated residual value at the annual rates below.

Freehold and leasehold properties 100 years

Plant and machinery 15 years

Estate and office – fixtures and fittings 5 - 10 years

Computer hardware and software 3 years

Plant, Freehold & machinery, Computer, Group & Association leasehold Estate fixtures & hardware & Total other properties equipment fittings software fixed assets £000s £000s £000s £000s £000s

Cost

At 1 April 2019 29,026 31,069 2,068 16,906 79,069

Reclassification - (4) - - (4)

Additions 1,413 2,578 - 4,991 8,982

Disposals (2,078) (699) - - (2,777)

At 31 March 2020 28,361 32,944 2,068 21,897 85,270

Accumulated depreciation

At 1 April 2019 6,205 13,763 1,906 7,188 29,062

Reclassification - (25) - - (25)

Charge for year 979 1,460 9 1,672 4,120

Disposals (1,211) (525) - - (1,736)

At 31 March 2020 5,973 14,673 1,915 8,860 31,421

Net book value

At 31 March 2020 22,388 18,271 153 13,037 53,849

At 31 March 2019 22,821 17,306 162 9,718 50,007

Total assets under construction included above are £8,281,000 (2019: £8,412,000) of which £1,029,000 (2019: £622,000) relate to internally generated costs paid in the year.

Annual Report and Group Financial Statements 2019/20 135 Notes to the Financial Statements For the year ended 31 March 2020

11. Investment properties

Properties for market rent or commercial lettings are included as investment properties and are recorded at fair value with changes in the market value reported in the statement of comprehensive income. No depreciation is provided in respect of investment properties.

At 31 March 2020 all commercial properties were market valued externally by Jones Lang Lasalle Limited, qualified RICS Chartered Surveyors. The desktop valuation adopted a rent capitalisation methodology using floor areas and rental values. In the instance of properties having a dual use as offices and commercial lettings the cost is split by use using the proportion of floor area with office carrying cost being disclosed in property, plant and equipment.

Developments under construction with a commercial property tenure are required to be split out from housing properties and classified as investment properties under construction. The commercial element is then valued as part of our investment portfolio at fair value and a gain or loss on revaluation recognised. Commercial units at both Dace Road and Herald Street have been valued at cost as they are new schemes purchased during this financial year, and therefore we consider the cost paid to represent the fair value of the assets held. The carrying value of these assets is £2,299,000.

Residential properties held for investment and rented at market rents were valued on an open market value basis subject to assured shorthold tenancies (MV-ST) by Jones Lang Lasalle Limited. The valuation model was either a discount to market value with vacant possession (MV-VP) or a discounted cashflow model over a 10-year period, with the net income in the final year capitalised into perpetuity. Schemes with more than 28 properties were valued using a cashflow model and all other schemes were valued using a discount to MV-VP.

As a result of the market impacts of Novel Coronavirus (COVID-19), the valuation reported on the basis of "material valuation uncertainty" as per VPS 3 and VPGA 10 of the RICS Red Book Global. This reflects the fact that at the valuation date, the valuers consider that they can attach less weight to previous market evidence for comparison purposes to inform opinions of value. The inclusion of a "material valuation uncertainty" declaration does not mean that the valuation cannot be relied upon. Rather, it indicates that less certainty - and a higher degree of caution - should be attached to the valuation than would normally be the case. As such, changes to assumptions made may have a significant impact on the valuations in future.

The key assumptions in the valuation of residential properties held for private rent using a cashflow model are considered to be exit yield and income discount rate. These properties have a carrying value of £53,150,000. The discount rates used range between 6.75% and 7.50% (2019: 6.75% to 7.00%) and the exit yields between 4.00% and 5.75% (2019: 4.25% to 5.00%). A change in exit yield and income discount rate of 0.25% results in a value reduction of approximately £3,000,000 (5.6%). A key assumption in the valuation of properties held at a discount to MV-VP is the discount applied and the MV-VP. The properties valued in this way have a carrying amount of £37,099,000 and the properties are held at between 85% and 95% of MV-VP (2019: 82% to 93%). For the discount to VP exercise, a 5% reduction in the MV-VP results in a value reduction of £1,800,000 (5%).

The commercial portfolio has a carrying value of £50,710,000. A key assumption is the equivalent yield for the portfolio of 6.87%. An increase in the equivalent yield to 7.75% would lead to a decrease in the valuation of £5,160,000 (10%).

These figures are disclosed as an indicator of potential sensitivity only.

136 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

11. Investment properties (continued)

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s Valuation at 1 April 106,934 108,944 90,110 103,359 Reclassification (to)/from stock (924) 7,568 - - Reclassification to PPE - (6,920) - (6,920) Transfer of engagement - - - 195 Additions 42,499 354 40,200 354 Disposals (143) (1,803) (143) (1,803) Transfer from/(to) fixed assets 798 (1,777) 798 (1,777) (Loss)/gain on revaluation of investment properties (5,865) 568 (5,650) (3,298) At 31 March 143,299 106,934 125,315 90,110

12. Investment in social HomeBuy

The Group retains a stake in homes purchased through the HomeBuy and Starter Homes Initiative schemes which are regarded as public benefit entity concessionary loans and are held in the statement of financial position and are recorded at transaction value less any consideration of impairment. The loan is repayable on the sale of the underlying property with any proportionate excess achieved on the sale value over the loan value being reported through the statement of comprehensive income.

Investments in HomeBuy and starter home initiatives are funded through social housing grant. The Association funds 6% of the stake in Starter Home Initiatives, with the remainder being funded through social housing grant. No interest is payable. The security is a charge on the loan and repayment is due upon the sale of the property. There are no concessionary loans committed but not taken up at year end.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

HomeBuy and Starter Home Initiatives 7,267 7,478 7,267 7,478

Annual Report and Group Financial Statements 2019/20 137 Notes to the Financial Statements For the year ended 31 March 2020

13. Unlisted investments

The unlisted investments comprise interest bearing cash deposits placed as a guarantee for loans from The Housing Finance Corporation Limited (“THFC”). These are held at cost adjusted for any increases in amounts deposited or withdrawn and impairment. The deposits are held as interest cover with differing maturity and interest rates in line with the loan facility agreements. Interest receivable is accounted for on an accruals basis.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Unlisted investments - held at cost

At 1 April 8,084 8,512 8,084 8,084

Cash deposit movement (196) (428) (196) (428)

At 31 March 7,888 8,084 7,888 8,084

14. Investment in connected entities

The investment in subsidiary of £1,740,000 (2019: £1,740,000) relates to Spruce Homes Limited and is supported by the net assets of the subsidiary. The investment loan comprises redeemable loan notes issued to Affinity (Reading) Holdings Limited.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Cost

Investment in subsidiary - - 1,740 1,740

Investment loan to joint venture entity 1,968 1,790 1,968 1,790

1,968 1,790 3,708 3,530

138 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

14. Investment in connected entities (continued)

Wholly owned Joint venture subsidiary entity Association £000s £000s £000s

Movement

At 1 April 2019 1,740 1,790 3,530

Net increase in investment - 178 178

At 31 March 2020 1,740 1,968 3,708

Southern Housing Group Limited holds:

• 100% of the ordinary share capital of Southern Development Services Limited • 100% of the ordinary share capital of Southern Space Limited • 100% of the ordinary share capital of Spruce Homes Limited • 100% of the ordinary share capital of Southern Housing Construction Limited

15. Investment in joint ventures

Joint ventures are those entities over which the Group exercises joint control through a contractual arrangement. Affinity Housing Services (Reading) is accounted for as a jointly controlled operation where the share of operations is brought directly into the Group and Association financial statements. Affinity (Reading) Holdings Limited is accounted for as a jointly controlled entity. In the Association figures it is held at cost less any impairment, in the Group it is held using the equity method of accounting.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Triathlon Homes LLP - - - -

Affinity (Reading) Holdings Limited

Investment 1,294 1,294 1,294 1,294

Share of accumulated surplus 616 592 - -

Net investment in joint ventures 1,910 1,886 1,294 1,294

Southern Housing Group Limited holds:

A 50% partnership capital in Affinity Housing Services (Reading), a joint venture with Yarlington Housing Group, which is accounted for as a jointly controlled operation. The joint venture has a 33% holding in Affinity (Reading) Holdings Limited, which holds 100% of the share capital of Affinity (Reading) Limited, the operator of a PFI contract to supply refurbishment, management and maintenance services to part of Reading Borough Council’s housing portfolio.

Annual Report and Group Financial Statements 2019/20 139 Notes to the Financial Statements For the year ended 31 March 2020

15. Investment in joint ventures (continued)

A 33.33% direct holding in Affinity (Reading) Holdings Limited, which together with the indirect holding described above, gives a total interest of 50%. The indirect interest is accounted for through the accounting of Affinity Housing Services (Reading). The direct interest is accounted for as a jointly controlled entity. In the Association it is held at cost less impairment and in the Group it is held using the equity method of accounting.

Southern Space Limited holds a one-third interest in Triathlon Homes LLP, a joint venture with First Base 4 Stratford LLP and East Place Limited. The principal activity of Triathlon Homes LLP is the management of the social housing within East Village, Stratford. Following the final handover of all units by the developer to Triathlon Homes LLP, all units are used for social housing in a variety of tenures.

Triathlon Homes LLP is accounted for as a jointly controlled entity and has net negative reserves due to a negative cash flow hedge reserve. The Group has no contractual liability for the resultant losses. Accordingly, the Group’s share of the net assets in Triathlon Homes LLP is written down to nil and no amounts are included in the Group Financial Statements under equity accounting. Income of £328,000 (2019: £396,000) was received from the investment in Triathlon Homes LLP.

16. Stock

Completed property stock and properties under construction for outright sale are valued at the lower of cost and net realisable value. Cost comprises land, materials, direct labour, direct development overheads and interest capitalised during the development period from commencement on site. Net realisable value is based on estimated sales price after allowing for all further costs of completion and disposal.

Stock in the course of construction is assessed against the net realisable value of the asset for impairment.

Shared ownership properties held for sale and under construction are split proportionally between stock and fixed assets, based on the expected first tranche proportion. First tranche proportions are accounted for as stock and the related sales proceeds are shown in turnover. The remaining elements of the shared ownership properties are accounted for as fixed assets. Subsequent sales are treated as part disposals of fixed assets.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Under construction - first tranche shared ownership 37,449 22,407 3,858 8,033

Under construction - open market sales 50,172 49,241 5,648 909

Completed properties - first tranche shared ownership 16,350 5,243 8,080 476

Completed properties - open market sales 5,738 10,468 - -

109,709 87,359 17,586 9,418

140 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

17. Trade and other debtors

Trade and other debtors are measured at transaction price less any impairment.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Rent and service charges in arrears 9,177 10,490 9,142 10,465

Less: provision for bad and doubtful debts (3,780) (3,813) (3,776) (3,813)

5,397 6,677 5,366 6,652

Amounts due from group undertakings - - 198,819 76,041

Other debtors 17,799 4,721 6,247 4,492

Prepayments and accrued income 2,680 3,586 2,680 3,567

25,876 14,984 213,112 90,752

The £198,819,000 (2019: £76,041,000) due to the Association from group undertakings relates to revolving loans to fund working capital with final repayment due after more than one year and the balances are expected to fluctuate in the short term. The loans are secured via a charge on the entity’s assets at interest rates between 2% and 4% over 3 month LIBOR (London Inter-bank Offered Rate). Other debtors for the Group includes VAT recoverable of £11,207,000 (2019: £112,000).

18. Creditors: amounts falling due within one year

Trade and other creditors are recognised at cost. Housing loans are carried at amortised cost.

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Social housing grant received in advance 201 201 201 201

Recycled capital grant fund (RCGF) 7,626 502 7,626 502

Disposal proceeds fund (DPF) 15 6 15 6

Amounts due to group undertakings - - 943 2,088

Accruals and deferred income 28,984 21,525 22,108 16,718

Corporation tax 1,263 926 - -

Other taxation and social security 177 1,436 177 958

Other creditors 23,228 23,381 22,223 22,751

Grant repayable 2,873 2,873 2,873 2,873

Housing loans 47,494 11,330 47,494 11,330

111,861 62,180 103,660 57,427

Amounts collected from shared ownership leaseholders in respect of service charges, not yet expended, of £10,231,000 (2019: £9,942,000) and trade creditors of £5,406,000 (2019: £6,848,000) are reflected above in other creditors.

Annual Report and Group Financial Statements 2019/20 141 Notes to the Financial Statements For the year ended 31 March 2020

19. Creditors: amounts falling due after more than one year

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

19a Housing loans and listed bonds 930,938 817,274 930,938 817,274

19b Deferred income 763,589 735,495 751,060 729,581

19c Recycled capital grant fund (RCGF) 6,441 11,635 6,408 11,602

19d Disposal proceeds fund (DPF) - 9 - 9

1,700,968 1,564,413 1,688,406 1,558,466

Group Group Association Association 19a Housing loans and listed bonds 2020 2019 2020 2019 £000s £000s £000s £000s

Housing loans falling due after one year 515,690 508,177 515,690 508,177

Bonds 425,000 325,000 425,000 325,000

Loan set-up cost (7,016) (7,14 4) (7,016) (7,14 4)

Other loan costs (2,736) (8,759) (2,736) (8,759)

Loans at amortised cost 930,938 817,274 930,938 817,274

Housing loans are secured by specific charges on 17,266 (2019: 16,748) of the Group’s housing units and are repayable in instalments due as follows:

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s

Housing loans falling due within one year 37,237 2,720 37,237 2,720

Interest accrued 10,257 8,610 10,257 8,610

Total housing loans falling due within one year 47,494 11,330 47,494 11,330

Between one and two years 37,106 53,230 37,106 53,230

Between two and five years 134,573 93,122 134,573 93,122

In five years or more 769,011 686,825 769,011 686,825

Total housing loans and bonds falling due after more than one year 940,690 833,177 940,690 833,177

Total housing loans and bonds excluding loan set up costs and other costs 988,184 844,507 988,184 844,507

Housing loans bear hedged fixed rates of interest ranging from 1.6% to 11.45% or variable rates based on a margin above LIBOR. The final instalments fall due for repayment during the period 2020 to 2047.

142 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

19. Creditors: amounts falling due after more than one year (continued)

The Group has three publicly listed bonds the terms of which are:

• 3.5% £300m 2047 • 4.5% £75m 2039 • 5.354% £50m 2044

Housing loans are subject to compliance with a number of financial covenants such as interest cover and gearing.

The increase in bonds relates to the issuance of £100m of bonds retained after the bond issue in the year ended 31 March 2019. The increase in housing loans relates to a partial drawdown of the Group’s fully secured existing revolving credit facilities during the financial year.

Group Group Association Association 19b Deferred income 2020 2019 2020 2019 £000s £000s £000s £000s

Social and other housing grant b/fwd 734,733 736,768 728,819 701,255

Social housing grant received in the year 46,300 3,545 41,155 3,545

Grant repaid 101 (25) 101 (25)

Transfer of engagement - - - 32,556

Grant on disposals (9,159) - (9,159) -

Transfer (from)/to RCGF (1,682) 3,425 (3,154) 133

Grant amortisation released on disposals 2,430 640 2,430 470

Amortisation of social housing grant in year (9,846) (9,620) (9,844) (9,115)

Deferred income - social housing grant c/fwd 762,877 734,733 750,348 728,819

Premium on debentures 143 193 143 193

Other deferred income 569 569 569 569

763,589 735,495 751,060 729,581

Group Group Association Association 19c Recycled capital grant fund 2020 2019 2020 2019 Balance relating to Homes England £000s £000s £000s £000s

Balance at 1 April 8,363 7,586 8,363 5,098

Grant released on sales 1,440 1,062 1,440 881

Transfer of engagement - - - 2,678

Interest added to fund 64 55 64 46

Grant recycled into new schemes - (340) - (340)

Balance at 31 March 9,867 8,363 9,867 8,363

Comprising amounts:

Due within one year 7,247 - 7,247 -

Due in more than one year 2,620 8,363 2,620 8,363

Annual Report and Group Financial Statements 2019/20 143 Notes to the Financial Statements For the year ended 31 March 2020

19. Creditors: amounts falling due after more than one year (continued)

Group Group Association Association Balance relating to the GLA 2020 2019 2020 2019 £000s £000s £000s £000s

Balance at 1 April 3,774 7,763 3,741 3,523

Grant released on sales 1,926 1,780 1,926 1,333

Transfer of engagement - - - 4,666

Interest added to fund 22 56 22 44

Intra-group transfer - - (1,472) (3,907)

Grant recycled into new schemes (1,522) (5,825) (50) (1,918)

Balance at 31 March 4,200 3,774 4,167 3,741

Comprising amounts:

Due within one year 379 502 379 502

Due in more than one year 3,821 3,272 3,788 3,239

Total due within one year 7,626 502 7,626 502

Total due in more than one year 6,441 11,635 6,408 11,602

Group Group Association Association 19d Disposal proceeds fund 2020 2019 2020 2019 Balance relating to Homes England £000s £000s £000s £000s

Balance at 1 April 15 14 15 14

Interest added to fund - 1 - 1

Balance at 31 March 15 15 15 15

Comprising amounts:

Due within one year 15 6 15 6

Due in more than one year - 9 - 9

Group Group Association Association Balance relating to the GLA 2020 2019 2020 2019 £000s £000s £000s £000s

Balance at 1 April - 12 - 12 Intra-group transfer 12 - - (12) Recycled into new schemes (12) (12) - - Balance at 31 March - - - -

144 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

20. Social housing grant

The Group receives financial assistance from Homes England and the GLA. These government grants are accounted for as deferred income in the statement of financial position and are amortised annually to the statement of comprehensive income based on the life of the building structure, which is 100 years.

The amount amortised represents a contingent liability to the entity and will be recognised as a liability when the properties funded by the relevant government grant are disposed of or when the property ceases to be used for social housing purposes as disclosed in Note 30.

The analysis of the assistance from government sources in the form of government grants is:

Group Group Association Association 2020 2019 2020 2019 Note £000s £000s £000s £000s

Government funding received 19b 762,877 734,733 750,348 728,819 Grants amortised in the year (contingent liabilities) 9,846 9,620 9,844 9,115

21. Provisions for liabilities

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s Balance at 1 April - 1,403 - 1,200 Provision recognised/(released) 3,500 (1,200) 2,500 (1,200) Defects provision released - (203) - - Balance as at 31 March 3,500 - 2,500 -

The provision of £2,500,000 for the Association relates to the anticipated cost of capital building safety works where an obligation has been created. The remaining £1,000,000 provision represents the remaining costs of completing the build of a commercial unit at a development scheme where the Group is committed to constructing the asset as part of the terms of purchasing the land. It is expected these costs will be incurred within the next financial year.

22. Called up share capital

2020 2019 Shares of £1 each issued and fully paid: £s £s Balance at 1 April 6 6 Shares issued during year 2 2 Shares surrendered during year (1) (2) As at 31 March 7 6

The share capital of the Association consists of shares of £1 each which carry no rights to dividends or other income. Shares in issue are not capable of being repaid or transferred. When a shareholder ceases to be a member, that person’s share capital is cancelled.

Annual Report and Group Financial Statements 2019/20 145 Notes to the Financial Statements For the year ended 31 March 2020

23. Capital commitments

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s Capital expenditure contracted but not provided for in the financial statements 153,114 46,387 20,313 24,111

Capital expenditure authorised but not contracted 185,092 123,093 61,779 2,051

Committed development expenditure for the Group and Association will be financed through £31,535,000 (2019: £23,209,000) grant with the balance funded through cash balances, cash generated, property sales and borrowings on undrawn funding facilities. It is not possible to identify the exact split of the funding.

24. Operating leases

Leased assets

Payments under cancellable operating leases are charged to the statement of comprehensive income on a straight line basis over the life of the lease.

Total Total Future minimum lease payments 2020 2019 £000s £000s Within one year 5 65 Between one and five years 288 252 Over five years 63 - 356 317

Operating leases with tenants

The Group’s rental properties other than those held for investment purposes are tenanted under cancellable operating leases with typical tenant break clauses of four weeks. Rents vary in line with the Rent Standard as set by the Government and affected by the Welfare Reform and Work Act 2016. The Group share of equity in a shared ownership property may be purchased by its leaseholder at any time at the pro-rata market rate, at which point ongoing lease payments will be adjusted according to the share of ownership retained by the Group.

Income on all operating leases is recorded in the statement of comprehensive income as the rent falls due. The Group’s residential market rented properties are let under operating leases which are cancellable ranging from four weeks to three month notice periods. The Group’s commercial properties are let under non-cancellable operating leases.

The Group’s future minimum operating lease receipts on commercial properties were:

2020 2019 Minimum amounts due within: £000s £000s less than one year 2,340 2,320 later than one year and not later than five years 6,660 7,168 later than five years 3,676 4,342 12,676 13,830

146 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits

Post employment benefits

The Group operates three defined benefit schemes all of which are closed to new members. There is one defined contribution scheme. a) Defined benefit schemes

Southern Housing Group Limited contributes to the Southern Housing Group scheme which has been closed to new members since 31 March 2003.

Southern Housing Group Limited also contributed during the year to:

• The Isle of Wight Council Pension fund for employees who transferred from the Isle of Wight Council. • The Islington local government pension scheme of which there is only 1 member, the share of scheme assets and liabilities of which are not material to the Southern Housing Group Limited financial statements. b) Defined contribution scheme

A defined contribution scheme administered by Scottish Widows Limited based on an incentive matched scale, where the employer contribution increases the more the employee contributes.

Regular valuations of the defined benefit schemes are prepared by independent, professionally qualified actuaries. These determine the level of contributions required to fund the benefits set out in the rules of the pension fund. The current service cost of providing retirement benefits to employees during the year, together with the cost of any benefits relating to past service, admin costs and net interest are charged against the operating surplus in the year. Remeasurement of the net liability (or asset) is recognised as actuarial gains/(losses) in other comprehensive income.

Employer contributions paid to all defined contribution schemes are charged to the statement of comprehensive income.

The Group has six commercial units and 57 private rent units charged against the Southern Housing Group pension plan at a carrying value of £27.3m.

The amounts recognised in the statement of financial position for the Group’s defined benefit schemes are as follows:

Group Group Association Association 2020 2019 2020 2019 £000s £000s £000s £000s Southern Housing Group Pension scheme (6,841) (7,213) (6,841) (7,213) Isle of Wight Pension scheme (1,733) (2,137) (1,733) (2,137) Total net deficit (8,574) (9,350) (8,574) (9,350)

Southern Housing Group Pension Scheme

Southern Housing Group Limited is the sponsoring employer of a funded defined benefit pension scheme (the Plan) in the UK, which provides retirement benefits based on members’ salary when leaving employment. The assets of the Plan are held in a separately administered fund which is administered by a trustee body (independent of Southern Housing Group Limited) who are responsible for ensuring that the Plan is sufficiently funded to meet current and future obligations.

Annual Report and Group Financial Statements 2019/20 147 Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

The present value of the defined benefit obligation and the related current service cost were measured using the projected unit credit method. The last full actuarial valuation was carried out at 31 March 2018. Southern Housing Group Limited has agreed a funding plan with the trustee of the Plan, whereby ordinary contributions are made into the Plan based on a percentage of active employees’ salary. Additional contributions are agreed with the trustee of the Plan to reduce the funding deficit where necessary. The disclosures set out below are based on calculations carried out as at 31 March 2020 by an independent qualified actuary.

SHG Scheme 1964

During the year the Group paid contributions at a rate of 24% until 30 June 2019, then 30.1% from 1 July 2019. In addition a further payment of £165,615 (2019: £662,460) was made towards an identified deficit.

The employer contribution rate to be applied from 1 April 2020 is 30.1%.

The results of the calculations and the assumptions adopted are shown below.

2020 2019 Actuarial assumptions % pa % pa Rate of increase in salaries 2.10 2.70 Discount rate 2.30 2.40 Inflation assumption - RPI 2.60 3.30 Inflation assumption - CPI 1.60 2.20

Mortality assumptions Male Female Current pensioner aged 65 21.60 23.50

Future retiree upon reaching 65 22.90 25.10

The major categories of scheme assets as a percentage of total scheme assets are:

2020 2019 % % Equities 45.20 46.90 Diversified growth fund & LDI 54.50 52.50 Cash 0.30 0.60 Total 100.00 100.00

2020 2019 Net defined benefit (liability)/asset £000s £000s Fair value of scheme assets 45,283 47,637 Present value of defined benefit obligation (49,210) (51,327) Defined benefit (liability)/asset recognised in statement of financial position (3,927) (3,690)

148 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

Southern Housing Group Pension Scheme (continued)

2020 2019 Total expense recognised in statement of comprehensive income £000s £000s

Current service cost 448 454

Past service cost - 307

Administration expenses 38 188

Net interest cost 82 77

Total recognised in statement of comprehensive income 568 1,026

Assets Liabilities Total Reconciliation of scheme assets and liabilities £000s £000s £000s

At 1 April 2019 47,637 (51,327) (3,690)

Benefits paid (1,067) 1,067 -

Current service cost - (448) (448)

Interest income/(cost) 1,137 (1,219) (82)

Administration expenses (38) - (38)

Employer contributions 554 - 554

Employee contributions 60 (60) -

Actuarial gains - 2,777 2,777

Return on scheme assets excluding interest income (3,000) - (3,000)

At 31 March 2020 45,283 (49,210) (3,927)

Annual Report and Group Financial Statements 2019/20 149 Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

SHG Scheme 2017

During the year the Group paid contributions at a rate of 11% until 30 June 2019, then 20.7% from 1 July 2019. In addition a further payment of £501,249 (2019: £633,000) was made towards an identified deficit.

The employer contribution rate to be applied from 1 April 2020 is 20.7%.

The results of the calculations and the assumptions adopted are shown below.

2020 2019 Actuarial assumptions % pa % pa

Rate of increase in salaries 2.60 3.30

Discount rate 2.30 2.40

Inflation assumption - RPI 2.60 3.30

Inflation assumption - CPI 1.60 2.20

Mortality assumptions Male Female

Current pensioner aged 65 21.60 23.50

Future retiree upon reaching 65 22.90 25.10

The major categories of scheme assets as a percentage of total scheme assets are:

2020 2019 % %

Equities 40.80 39.60

Diversified growth fund & LDI 58.30 58.10

Cash 0.90 2.30

Total 100.00 100.00

2020 2019 Net defined benefit (liability)/asset £000s £000s

Fair value of scheme assets 23,574 24,813

Present value of defined benefit obligation (26,488) (28,336)

Defined benefit (liability)/asset recognised in statement of financial position (2,914) (3,523)

150 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

2020 2019 Total expense recognised in statement of comprehensive income £000s £000s

Current service cost 138 125

Past service cost - 119

Administration expenses 170 168

Net interest cost 78 77

Total recognised in statement of comprehensive income 386 489

Assets Liabilities Total Reconciliation of scheme assets and liabilities £000s £000s £000s

At 1 April 2019 24,813 (28,336) (3,523)

Benefits paid (833) 833 -

Current service cost - (138) (138)

Interest income/(cost) 592 (670) (78)

Administration expenses (170) - (170)

Employer contributions 647 - 647

Employee contributions 66 (66) -

Actuarial gains - 1,889 1,889

Return on scheme assets excluding interest income (1,541) - (1,541)

At 31 March 2020 23,574 (26,488) (2,914)

Annual Report and Group Financial Statements 2019/20 151 Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

The Isle of Wight Council Pension Scheme

The Group participates in a pension scheme providing benefits based on final pensionable pay: The Isle of Wight Pension Scheme. The scheme is funded by the payment of contributions to a pension fund, which is administered by the Isle of Wight Council. The Group has agreed a funding plan with the trustee, whereby ordinary contributions are made into the scheme based on a percentage of active employees’ salary. Additional contributions are agreed with the trustee to reduce the funding deficit where necessary.

A comprehensive actuarial valuation of the pension scheme, using the projected unit credit method, was carried out at 31 March 2019 by a qualified independent actuary.

It has been agreed that an employer contribution rate of 28.3% of pensionable pay plus an additional amount of £350,000 will apply for 2020/21 (2019/20: 28.3% plus £350,000).

The major assumptions used in this valuation were:

Actuarial assumptions % pa % pa

Pension increase rate 2.00 2.50

Salary increase rate 2.80 2.90

Discount rate 2.30 2.40

Inflation assumption - RPI 2.90 3.50

Inflation assumption - CPI 2.00 2.50

Mortality assumptions Male Female

Current pensioner aged 65 21.70 23.80

Future retiree upon reaching 65 22.40 25.20

The major categories of scheme assets as a percentage of total scheme assets are

2020 2019 % %

Equities 62.00 67.00

Property 6.00 6.00

Bonds 30.00 26.00

Cash 2.00 1.00

Total 100.00 100.00

152 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

25. Post employment benefits (continued)

The Isle of Wight Council Pension Scheme (continued)

2020 2019 Net defined benefit (liability)/asset £000s £000s

Fair value of scheme assets 5,545 5,820

Present value of defined benefit obligation (7,278) (7,957)

Defined benefit (liability)/asset recognised in statement of financial position (1,733) (2,137)

2020 2019 Total expense recognised in statement of comprehensive income £000s £000s Current service cost 74 71 Net interest cost 46 56 Total recognised in statement of comprehensive income 120 127

Assets Liabilities Total Reconciliation of scheme assets and liabilities £000s £000s £000s At 1 April 2019 5,820 (7,957) (2,137) Benefits paid (333) 333 - Current service cost - (74) (74) Interest income/(cost) 142 (188) (46) Employer contributions 465 - 465 Employee contributions 8 (8) - Actuarial gains - 616 616 Return on scheme assets excluding interest income (557) - (557) At 31 March 2020 5,545 (7,278) (1,733)

Defined Contribution Schemes

The amount recognised as an expense for the year for the defined contribution scheme was: Scottish Widows Limited £1,706,385 (2019: Zurich Assurance Limited £1,333,773).

Annual Report and Group Financial Statements 2019/20 153 Notes to the Financial Statements For the year ended 31 March 2020

26. Legislative provisions

Southern Housing Group Limited is incorporated under the Co-operative and Community Benefit Societies Act 2014 (Registered Number IP31055R) and registered with the Regulator of Social Housing (Registered Number L4628).

27. Group organisations

Southern Housing Group Limited is the ultimate parent undertaking and controlling party and is required by statute to prepare group financial statements for the following organisations included in these financial statements. All the undertakings are incorporated in England and Wales:

Name Legal status Regulator Nature of business Interest held by Parent (SHGL)

Southern Housing Co-operative and Registered provider number: Provision of housing Group Limited Community Benefit L4628 and accommodation to Societies Act 2014 the disadvantaged Number IP31055R

Southern Home Co-operative and Registered provider number: Development 100% shares Ownership Limited Community Benefit Societies LH1662 and management of Act 2014 Number IP18521R properties

Southern Space Companies Act 2006 Vehicle for the one third 100% shares Limited Number 05437850 share in Triathlon Homes LLP

Southern Development Companies Act 2006 Provision of development 100% shares Services Limited Number 05400187 services to other group companies

Spruce Homes Companies Act 2006 Provision of housing 100% shares Limited Number 10181074 for private rent

Southern Housing Companies Act 2006 Provision of property 100% shares Construction Limited Number 10181046 construction services

Samuel Lewis Charitable endowment. Charity Commission Provision of housing and Corporate trustee Foundation Charity number 206611 accommodation to the disadvantaged (see Note 29)

Affinity Housing Services Jointly controlled operation Joint venture with 50% partnership capital (Reading) Yarlington Housing Group

Affinity (Reading) Companies Act 2006 Joint venture with 33.3% share and 16.67% Holdings Limited Number 04851135 Radian Housing via Affinity Housing Services (Reading)

Triathlon Homes The Limited Liability Joint venture entity with 33% partnership interest via LLP Partnership Act 2000 First Base 4 Stratford LLP Southern Space Limited and East Place Limited

154 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

28. Related parties

Intra-group transactions for Southern Housing Group Limited with non-regulated group members are as follows:

2020 2019 Payments received by Southern Housing Group Limited £000s £000s

Administration support and development costs from Southern Space Limited, Southern Development Services Limited, Spruce Homes Limited and Southern Housing Construction Limited 1,971 2,205

Loan interest from Southern Space Limited, Spruce Homes Limited and Southern Housing Construction Limited 90 1,385

Director’s service and profit distribution from Affinity Housing Services (Reading) 161 155

Provision of financial services for Triathlon Homes LLP 588 140

Gift aid from Southern Space Limited and Southern Development Services Limited 1,472 1,446

Total 4,282 5,331

2020 2019 Payments made by Southern Housing Group Limited £000s £000s

Development costs paid to Southern Development Services Limited 6,260 15,135

Management costs paid to Spruce Homes Limited 94 69

Property equity purchase paid to Southern Space Limited 453 -

Total 6,807 15,204

2020 2019 Assets £000s £000s

Intercompany debtor due from Southern Space Limited, Spruce Homes Limited and Southern Housing Construction Limited 1,874 2,826 to Southern Housing Group Limited

Redeemable loan notes due from Affinity Reading (Holdings) Limited 1,968 1,790

2020 2019 Liabilities £000s £000s

Intercompany creditor due from Southern Housing Group Limited to Southern Space Limited, 943 2,088 Southern Development Services Limited and Southern Housing Construction Limited

Intra-group transactions for Southern Home Ownership with non-regulated group members are as follows:

2020 2019 £000s £000s

Purchase of developments from Southern Space Limited 1,566 42,893

Management income from Spruce Homes Limited 450 9

Development costs paid to Southern Development Services Limited and Southern Housing Construction Limited 3,296 5,111

Intercompany debtor due from Spruce Homes Limited 40 9

Intercompany creditor due to Southern Space Limited, Southern Development Services Limited and 561 1,247 Southern Housing Construction Limited

Annual Report and Group Financial Statements 2019/20 155 Notes to the Financial Statements For the year ended 31 March 2020

28. Related parties (continued)

Payments totalling £1,352 were made to Southern Housing Group Limited by Simone Buckley, a Board member who was a leaseholder during the year. The terms of the lease are on the same basis as for other tenants and on an arm’s length basis.

As Southern Housing Construction Limited has net current liabilities, the Association has provided a letter confirming its intention to provide financial support if required for this entity for a period of at least 18 months from 1 April 2020.

29. Samuel Lewis Foundation

The Samuel Lewis Foundation is a separate charity with Southern Housing Group Limited as its trustee. Permanent endowment funds comprise the following resources which have been made available and which the trustees are legally required to retain, or invest for specific charitable purposes. As these are permanent funds, the trustees have no power to convert them into income and apply them as such. The fund balances include funds transferred from The Women’s Housing Trust. These balances are included in the parent association, Southern Housing Group Limited. This disclosure is given for reporting purposes to the Charity Commission.

Expenditure on letting activities comprise certain specific identifiable costs and overheads which have been apportioned on a consistent basis to the endowed properties.

Dalmeny Avenue was regenerated in 2018, with all sales proceeds ringfenced for the specific charitable purposes of the Samuel Lewis Foundation.

Date of acquisition Original cost £000s Number of units Liverpool Road 1910 324 247 Jubilee Cottages 1935 707 28 Palliser Road 1927 973 57 Beech House 1936 701 16

Fund balances are represented by:

2020 2019 £000’s £000’s Property, plant and equipment 14,363 14,327 Cash 15,285 15,285 Investment properties 6,900 7,200 Total assets less current liabilities 36,548 36,812 Creditors: amounts falling due after more than one year Social housing and other grants (7,701) (7,4 43) Total net assets 28,847 29,369

156 / 06. Audited financial statements of the Group Notes to the Financial Statements For the year ended 31 March 2020

29. Samuel Lewis Foundation (continued)

2020 2019 Net income from permanent endowed assets £000’s £000’s Income from lettings 1,851 1,918 Less expenditure on letting activities (651) (809) Surplus on letting activities 1,200 1,109 Income from investments - 11 Loss on revaluation (300) (265) 900 855

30. Contingent liabilities

The parent and Group have grant attributable to properties acquired from other housing associations that were purchased at fair value, measured at Existing Use Value – Social Housing (EUV-SH) or through a competitive bidding process. These properties included original government grant funding of £46,204,000 (2019: £32,397,000) which the parent and Group have an obligation to recycle in accordance with the original grant funding terms and conditions. In accordance with the SORP, these amounts are disclosed as a contingent liability. The parent and Group are responsible for the recycling of the grant in the event of the housing properties being disposed.

At 31 March 2020 the value of cumulative amortised grant which would require to be recognised as a liability if the properties funded were disposed of or ceased to be used for social housing purposes was £143,123,000 (2019: £135,706,000).

31. Post balance sheet events

Crown Simmons

On 1 April 2020 Crown Simmons Housing (the trading name of Rosemary Simmons Memorial Housing Association Limited) with its two subsidiaries, Hewitt Homes and Fellowship Housing Trust, joined the Southern Housing Group as a separate subsidiary. A total of 625 units at a historical cost of £56,968,000 were acquired.

The contracted capital commitments of Crown Simmons at this time were £2,636,000. Loans of £10,716,522 were acquired with the borrowings being repaid in April 2020. This was funded by Southern Housing Group providing an intercompany loan.

The fair value exercise to apply acquisition accounting has not yet taken place.

Project Coordinate

A binding sale agreement existed as at 31 March 2020 for the sale of 257 units to another registered provider. The units were held at a carrying value of £14,800,000 with grant attached of £6,300,000. The sale completed on 4 May 2020 and generated a surplus on disposal that will be recognised in the 2020/21 financial statements.

Annual Report and Group Financial Statements 2019/20 157 Contact us

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